KARACHI STOCK EXCHANGE

Nov 16 - 22, 1996

The Karachi Stock Exchange (KSE) came into existence on September 18, 1947. It was later converted into a registered company limited by guarantee on March 10, 1949. Though as many as 90 members were enrolled at that time, hardly half a dozen of them were active as brokers. Initially, only 5 companies were listed with a paid-up capital of Rs. 37 million.

From this modest beginning the Karachi Stock Exchange had become, by the end of December 1991, a key institution in the financial sector of Pakistan and today has a membership strength of 200 with almost 140 active members trading in 751 listed companies, having a list capital of Rs. 122.709 billion (US$ 4.0 billion) with a market capitalisation of Rs. 355.359 billion (US$ 11.4 billion) as on October 31, 1996. There is an average daily turnover of approximately 13.0 million shares.

Trading takes place on a an open outcry system. Each quoted security being traded in sequence. Bids and offers are shouted by members' trading clerks, with transactions being noted by KSE and recorded on board. When a bid and offer matches, a transaction takes place. Price movements are also relayed to members on closed circuit monitors. Trading on the Stock Exchange falls under three categories.

Settlements take place at the counter through a centralised clearing house. Clearing dates are posted in advance and shares traded from Tuesday to Monday on any week are settled generally on the following Monday. The clearing house is operated by the Stock Exchange and this department nets out the purchases and sales and the financial obligations thereon of each member/firm for a notified clearing period and issues instruction for deliveries of netted outstanding. Payments from and to members are routed through the clearing house of the Exchange. A valid negotiable delivery involves a share certificate issued by the company accompanied by a transfer deed, signed by the shareholder or seller as a transferor with his signature duly verified by the company.

In this sector those companies are traded which have offered their shares to the general public either through a prospectus or an offer for sale and where allotments have been made, but necessary negotiable instruments have not been despatched or completed by the allottees. Trading in this sector is discontinued as soon as that company is listed on the ready counter. Trades during the provisionally listed period are controlled by the Stock Exchange through weekly clearing settlements.

In order to provide improved and more efficient service to the investors, modernization of the infrastructure of the Exchange has become inevitable. The KSE has already computerised its clearing operations and the market information display system. However, there are still various measures which are required to be taken to cope with the increased trading activity and the increasing number of listed companies. Amongst them the important ones are: (1) establishment of a central depository system and custodian service (2) expansion of the market information display system, and (3) providing more office space for the members of the exchange.

Market information is now available instantly to many major financial institutions outside the building including the Lahore and Islamabad Stock Exchanges through dedicated telephone lines. The market information system of the KSE is now carried on real time basis by Reuters, to about 142 countries of the world. This system enables investors, both local and foreign to receive statistical data about the listed companies.