LAHORE STOCK EXCHANGE THROUGH HISTORY

By GROUP CAP (R) NAEEM. A. KHAN
and MUSTAFA KAMAL PASHA
Nov 16 - 22, 1996

Lahore Stock Exchange (Guarantee) Limited came into existence in October 1970, under the Securities and Exchange Ordinance, 1969, of the Government of Pakistan in response to the needs of the Provincial metropolis of the Punjab. Only 83 members had its memberships and it was housed in a rented building in the crowded area of Bank Square in exotic city of Lahore. The number of members has increased from 83 to 150 over a period of 25 years. Inadequacy of space, crowded area and severe limitations of communications cramped its growth. Only a few of all the members were active, and they too had to work through Karachi Stock Exchange, or be limited to do business in Bonus, Vouchers and Bonds. It took the management all of two decades of uncertainties, apprehensions and planning to construct a suitable building for itself and venture out to its present location at 19-Khayaban-e-Aiwan-e-Iqbal, Lahore. There was sufficient space, modern facilities, and all the needed communications at this new location. The move could not have been at a more opportune time. The Government of Pakistan had embraced the market economy policy. Deregulation was rapidly underway. Privatization of nationalized, and a part of public sector industries was speedily moving ahead. Asia was identified as the future centre of world growth. Lahore Stock Exchange was prepared to contribute its full share in this growth. Twenty one new members including six corporate members, were inducted in 1994, bringing the number of members 150. Some members have converted their individual memberships into corporate memberships. It was not long before the Lahore Stock Exchange came to its own. The past two years have seen Lahore Stock Exchange came to its own. The past two years have seen Lahore Stock Exchange come to its own. Business has been steadily on the increase. A modern Management Information System, (MIS) has been firmly in place. Clearing House activities are fully computerized, computer ordering has been almost implemented. It shall be 100% in place about a year time. Full order matching facilities are planned to be implemented by the end of 1996. LSE is a sponsor of Pakistan Central Depository Company of Pakistan Limited (CDC). As and when the CDC comes on line and becomes active business in LSE shall take a quantum leap forward. Six hundred fourteen companies are listed at the LSE and more are expected to list during the current year, market capitalization of the institution amounts to about Rs. 300 billion.

LSE has set up a credit rating company named "Pakistan Credit Rating Agency (Pvt) Limited", (PACRA), in a joint venture with International Finance Corporation (IFC), and IBCA Limited of London, this shall provide unbiased scientific rating of companies, a facility to customers, the LSE is planning to sponsor a Centre of Excellence and library has been set up which shall provide reference facilities for research projects. There is a calendar full of educative and instructive activities at LSE to keep its members upto date as well as afford opportunities to investors to enhance their knowledge for more effective investment.

Law and order situation has shown significant adverse effects on the shares market in Karachi. There is a discernible tilt of investors towards LSE, DFIs and market makers that had patronized KSE exclusive are showing signs of taking serious note of progress made by LSE. Rapid modernization of LSE, improvements implemented and planned in the management, development of interface capabilities had opened up new horizons for LSE better opportunities are appearing on the horizon.

The management of LSE through its Board of Directors rests in young but mature hands led by the President LSE, Mr. Noshir F. Dastoor, a renowned person of capital market and Vice President, Mr. M.Tabassum Munir. Both of them are visioned, youthful, dynamic progressive, clear headed, pragmatic and sagacious. They are supported by equally eager, dynamic and progressive directors, Arif Ali Shah Bukhari, Mazhar Rafique, Shahid Mahmood, Tanvir Malik, Anwar Ahmad, Afzaal Sharef, Group Capt.(R) Naeem A. Khan Aqeel Karim Dhedhi, Mian Nusrat-ud-din, Khawaja Sami Rashid and Haji Malik Muhammad Rafi. The management is a fine mix of youthful, eager, enthusiasm and cautious well thought out and researched progress. Mr. Jamil Ahmed the General Manager, Abdul Rauff Butt, the Secretary, Azmat Ali Butt and Mustafa Kamal Pasha, Dy Secretaries provided continuity to LSE progress.

So rapid has been the progress of LSE, and so phenomenal its growth that all previous plans have been rendered inaccurate. The management has been able to keep the situation just about under control through modernization and significant improvement in communication. But this may not be sufficient. Physical expansion appears to be inevitable. A high powered "Construction Committee" has been especially formed to look into the situation, and recommended solutions that should meet the LSE space requirements for the next 10-15 years. A plan beyond the next 15 years is also on the anvil which shall cater to needs of LSE upto the end of first half of 21st century. Lahore Development Authority (LDA) has been served an application for allotment of a tract of land for LSE in their development plan for their Trade Centre in Jauhar Town, which shall, we hope, house the LSE complex.

The management of LSE is run by its president, who is directly elected by the members of the LSE, assisted by the Vice President, who is elected by the 14 directors, who in turn are elected by the members. There are two ex-officio directors, representing the DFI's and the CLA, and a General Manager. Fourteen committees are formed out of directors and members of the LSE to look after all affairs of LSE. Convenor is chosen by the members of each committee, who then becomes responsible to the Board of Directors for the smooth and efficient running of the committee, and the LSE affairs in that particular field. Minutes of all the committees' meetings are presented to the Board, and Board's approval of the minutes provides legal sanctification to the decision of the competent authority when it is needed. A permanent secretariat managed by a General Manager, and specialist professional assistance of legal, audit and accountants, is available to strengthen implementation of management decision.

Lahore Stock Exchange has taken shape of a significant institution of Pakistan. It owes a debt of gratitude to its past presidents and members of the Board who had contributed their time and energy to realize the dreams of the LSE members. The Corporate Law Authority (CLA) has had a large measure of contribution in guiding the direction of LSE. Their assistance has been readily available ensuring development of a systematic, orderly and sound institution. A grateful mention must be made of Mr. Khalil Masood, Chairman Corporate Law Authority and Mr. Jameel Ahmed Bhutto, Member (Securities), CLA, who on more than one occasion had helped the LSE to steer clear of troubles in difficult situations. LSE today is an established institution with its own distinctive views which are taken seriously by the policy makers and legislators at national level.

Modernization and automation of LSE.

To keep pace with the globalisation of securities trading, Lahore Stock Exchange (LSE) has taken dynamic and bold initiatives in evolving an over-all policy to modernize and automate the trading facilities offered to its members and investors. This is to gradually transform the LSE from a local to an international financial market. Most noticeable area of development are the exchange's trading, equity, and clearing system.

In 1993, with completion of the existing six-storey building, the first formal trading floor was established in Lahore. This marked the start of day-time trading resulting in marked increase in the market turnover. In 1994 LSE was granted permission to trade in provisionally listed companies further increasing the traded stock volume per day. Due to the specific nature of provisional trading strong trading controls had to be in place in order to safeguard the interests of investors. The parallel trading of ready-board and provisional increased pressure on the clearing house through which all the financial settlements take place. To implement the equity services, the trading controls, and to run the clearing house in an effective and efficient manner it was essential to fully automate these operations.

Lahore Stock Exchange has done large investment in technology and automation since 1994 to provide fast and efficient trading facilities. The process of modernization of trading facilities began with the installation of a computerized communication and information system in July 1994. A computer communication infrastructure with an overall capacity of over 400 nodes was commissioned. The network is designed to serve as a data highway for current and the future stock services. Presently, over 200 nodes use the on-line information facilities over the network.

The equities information is transmitted from the trading hall to all the members over the network, which is also made available to members and investors outside the LSE building. In addition to the trading information the settlement system is also completely computerized, and members have on-line access to their clearing data from their offices.

Lahore Stock Services

With Lahore Stock Services (LSS) the brokers can choose between the market or clearing data services, while the investors have the choice between the Lahore and the Karachi equities services.

Key features of LSS equities service

It is a realtime equities monitor that helps you make your decisions on securities in the Lahore and Karachi stock exchange. It also provides basic analysis on the historical data. The key features include:

Equities scroll

Realtime equities scroll on the total traded companies for monitoring price/volume fluctuations on either the Karachi Stock Exchange (KSE) or the Lahore Stock Exchange (LSE) data. It carries the daily share market's fluctuations in each scrip, rates of provisionally listed companies, count of up, down and unchanged stocks, index status and volume of transactions.

Performance of stocks

We provide a daily list of top 10 gainers and losers pricewise and volumewise. We also provide the daily movements and the fluctuations in a specific stock including opening, closing and the total trades done in the stock. A list of the traded companies with turnover is also available between a specified date range in addition to the groupwise list of companies that did not trade between a date range.

D,aily market statistics

Daily market statistics are also provided that include the current market capitalization of all the equities in addition to the current market capitalization of individual stocks, the overall and the individual paidup value of stocks, the stock turnover and its monetary value, the current and the previous day index and its monetary value in rupees.

Personal portfolio management

There is a provision by virtue of which each member is able to create a personal portfolio. Each end user can define its list of preferred companies in which he deals most of the time. He can then list his total sales, purchase, and status of only those companies defined in his portfolio.

Share order/interest match system

The members are able to narrow down the prospective buyers and sellers in scrips of their interest. The results of their matching is available to them immediately, over the network, after the run. The list of the members interested in a particular scrip, and that of the companies that a member is interested in is also available networkwide.

Additional features of LSS

  • Closing rates of all the companies on a particular date

  • Daily running and endoftheday LSE 101 Index

  • Daily status of all traded stocks and their turnover

  • Current rate of any scrip

  • Number of traded companies on a particular day

  • Total number of deals in a particular scrip

  • Best bid rate of a scrip on a given date

  • Best offered rate of a scrip on given date

  • Lowest rate of a scrip on a given date

  • Average rate of a scrip on a given date

  • Best volume deal on a specific date

Information Dissemination through Teletext

LSE, in collaboration with Wavetech, has started the Teletext services where the general public is able to view the rates of LSE as well as KSE over their television sets within the range of STN Lahore transmitter. The provision for storing and retrieving the stock information on personal computers is also available.

Clearing House System (CHS)

Clearing house system provides the clearing house with an automated platform for managing the readyboard as well as the provisional clearing. It implements all the controls (such as HELLA monitoring etc.) that are necessary to conduct the provisional clearing in a timely manner. It is a multiuser system that allows data entry and retrieval from any node on the network. Strong security features are incorporated to prevent unauthorized access to data. Other features include most recent trading activity reports, comprehensive record of members, and check of members' credit limits.

The clearing procedure is automatically linked to a clearing schedule entered into the computer system, performing clearance strictly according to the dates' found in this schedule. Nevertheless, reports of trade activity of members is available at any time and retrieval of members' data is possible from their own rooms. Strict security measures are implemented to prevent unauthorized access to private data.

Final testing of the software is currently being carried out at LSE and expected to be available by the end of the year. Rules for full screen trading have been framed and submitted to the CLA for approval. These, too, are expected to be approved notified and available in time to launch of the fully computerized trading at LSE.

The Lahore Stock Exchange has become a full member of the Federation of Euro-Asian Stock Exchanges (FEAS) which has its head quarters in Istanbul, Turkey. FEAS has at the present time 20 nations of the region as its members. When fully operational the form shall provide opportunity of listing of companies at any or many of the member Stock Exchanges as well as opportunities of cross border trading. The Lahore Stock Exchange because of its in-house computerization department and its progress in the automation of its services has been elected to head the technical committee of FEAS. The LSE is already internationally known and shall, before long, become a well known bourse in the global capital market. The exchange is, however, how fully automated from the point of view of stock market monitoring and settlement system and MIS facilities. The Lahore Stock Exchange has taken several bold initiatives to upgrade its infra-structure, computerize its trading; streamline and revamp its management and update its rules and regulations and procedures. The programme launched in 1994 has started to show its results.

Highly qualified and experienced engineers and technicians were employed to establish in-house capabilities. An indigenously developed MIS became operational in October 1994. Data dissemination, on-line clearing report, on-line exposure and loss monitoring system, become available to LSE members and Staff, the LSE had contracted with M/s. EFA of Canada to supply a fully automated trading system. The system specification and special trading procedures were jointly developed. The system has been fully developed and under tests at LSE computers. Full screen trading is expected to start after 4-6 weeks of proving period by the end of 1996.

Modernization of management and administrative set up is also in advance stages and expected to be fully in place by the beginning of 1997. The Rules, regulations and procedures are being reviewed by two different leading law firms and expected to be available shortly. LSE is fully prepared to stand shoulder with the most modern Stock Exchanges of the world.

The progress made by LSE in the computers field has recognized internationally, the quarterly "Emerging Market Review" an International Publication of IFC has made special mention of the computerization progress.

The immediate modernization steps, intermediate expansion plans, and its perceived long terms goals shall ensure that LSE firmly remains on the road to progress and prosperity, effectively expanding the upcountry capital market. The LSE shall herald 21st century well prepared poised and ready to play its role in the global capital market. Development of state of the art infra-structure that shall ensure transparency in trades, efficiency in operations, reliable clearing house and assured settlement are certain to make the Lahore Stock Exchange the most attractive entry point of entry for foreign investors and capital.