ANNUAL REPORT JUNE 2010
FEDERATION OF EURO-ASIAN STOCK EXCHANGES
KARACHI STOCK EXCHANGE
The KSE 100 index registered a growth of
60% in 2009.
Adnan Afridi
Managing Director
The year 2009 was a year of consolidation and
recovery. Pakistan’s economic growth rate
declined to just over 2% compared to an average
growth rate of almost 7% over the 5 year period
2004-08. A weak global economy, high levels of
political uncertainty and a poor law and order
situation all played a role in the decline in the
country’s economic activity. which is especially impressive against the
backdrop of militant activity in the country. It is
also encouraging to note that companies are once
again beginning to show a keen interest in raising
capital and towards the end of 2009 a significant
increase in IPOs has been witnessed which
signals a path to recovery in market activity for the
next year.
Despite being a slow year, the reduction in
inflation, relative macro-stability, strong
remittances and gradual monetary easing by the
State Bank of Pakistan led to encouraging
corporate performance. The capital markets have
rebounded albeit with low volumes and their
performance remains highly correlated with the
political and security situation in the country. The
KSE 100 index registered a growth of 60% in 2009 During 2009, the Karachi Stock Exchange re-
introduced Deliverable Futures Contracts and
adopted the global FIX protocol allowing Direct
Market access for global traders. The Karachi
Stock Exchange, also introduced the Debt Market;
now trading in corporate bonds is being
conducted through the Bonds Automated Trading
System (BATs). We are hopeful that with continued
support from the State Bank of Pakistan and
HISTORY AND DEVELOPMENT
The KSE is the biggest and most liquid exchange
amongst the three exchanges of Pakistan. It came
into existence on 18 September 1947. It was later
converted and registered as a company limited by
guarantee on 10 March 1949. Initially, only five
companies were listed with a paid-up capital of Rs.
37 million (US$ 0.62 million).
The year 2009 was year of consolidation and
recovery. The KSE 100 Index registered a growth
of 60% and close at 9386.92 points. As of Dec 31,
2009, ordinary shares of 651 companies were
listed having listed capital of Rs. 814.48 billion
(US$ 9.66 billion) with the market capitalization of
Rs.2,705.88 billion (US$ 32.10 billion).
In 1991 the secondary market was opened to
foreign investors on an equal basis with local
participants. This measure, along with a policy of
privatization, has resulted in rapid growth of the
market since 1991.
Management
The KSE has an independent Board of Directors
(10 directors) with representation from the
Members of the Exchange & from the Corporate
Community. Five directors are elected from
amongst the 200 members of the Exchange and
four non member directors are nominated by
Regulator i.e., SECP the Chairman is elected by
Board from amongst non member Directors
whereas, Managing Director is ex-officio member
of the board KSE is in process of demutualization,
it is presently a company limited by guarantee, will
be converted into a company limited by shares.
Automation of the Exchange
KSE has a fully automated trading system with
T+2 settlement system whereby all trades settle on
the second day after the trade. Internet based
trading system was also launched in December,
2004 to provide an additional facility for investors
PAGE 98
to enter their orders. KSE has also launched a
single exchange-traded market for trading
corporate bonds in Pakistan using BATS. KSE’s
BATS provide live system based, on screen
electronic Trading Platform which offer, market
participants a transparent and efficient trading
system features and facilities crucial for the Debt
market Securities Trading. KSE also launched
Stock Index Futures Contract. This marks a
momentous achievement for the KSE.
Unique Identification Number was introduced to
provide a traceable link between every order
entered at the trading system of the Exchange.
VaR based margining system was also introduced
in place of a slab based Risk management
system. The new RMS included, amongst others, a
new netting regime; a margining system based on
Value at Risk (VaR) and Capital Adequacy. KSE
has also adopted the FIX protocol (Financial
Information Exchange) for both trading and market
data. Due to this technology, KSE will be able to
attract local, regional and global liquidity by
providing KSE members to seamlessly interact
with their automated trading platform and offer
access to their international trading partners.
ACCOMPLISHMENTS 2009
• Introduction of Corporate Bonds Automated
Trading System
• Data Vending and Launch of Mobile KSE
Automated Trading System (mKats)
•Implementation of internationally accepted
industry classification Benchmark a jointly
developed classification system launched by FTSE
Group and Dow Jones Index.
RISK MANAGEMENT
• Introduction of Client Level Margining Regime
• Restructuring of Net Capital Balance requirement
• Pre-settlement mechanism in Ready &
Deliverable Future Contract Market
active participation from asset management
organizations, and banks, this market will be
extended to include public debt as well. In line
with our commitment to investors we continued to
upgrade our risk management capabilities – the
KSE introduced Client Level Margining on October
1, 2009. The objective of this mechanism was to
bring about a shift from broker level margining to
the Client/UIN level margining. All related
trading/exposure capital is now available on the
basis of UIN wise collateral positions in terms of
respective sub-accounts.
Moving forward, we remain committed to
enhancing our risk management and surveillance
measures to further increase transparency and to
ensure a level playing field for all investors.
• Introduction of Exposure Dropout Facility during
Trading Hours
•Introduction of Client wise cash deposits
allocation against exposure margin and losses
• Change in Penalty requirements on Net Capital
Balance Certificate.
The National Clearing & Settlement Company has
already been established. The company handles
clearing and settlement of three exchanges of the
country under one roof. Physical settlement to
online real-time book-entry settlement of the
securities through Central Depository System has
also been introduced to eliminate the opportunities
for forgery, fraud and delay in transfer.
Transparency of the listed companies has been
enhanced with the introduction of quality audits,
quarterly financial reports and timely dividend
payouts. Corporate governance is also now the
part of the KSE’s listing regulation.
FUTURE OUTLOOK
KSE is determined to remain one of the growing
investment institutions not only within the country
but globally as well.
• Corporatization and Demutualization of stock
Exchange:
National Assembly has passed the Stock
Exchange (Corporatization, Demutualization and
Integration) Bill and this will now be tabled in the
Senate for its approval and afterward, will be
notified in the official Gazette for its promulgation
as Stock Exchanges (Corporatization,
Demutualization and Integration) Act.
• Introduction of New Products and New
Measures:
KSE plans to introduce new products into the
market, to further cater to the growing needs of its
investors and help develop Pakistan’s capital
markets. KSE will be introducing: Exchange Traded
Funds, Sector Based Index, new derivative
products.