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Lahore Stock Exchange (Guarantee) Limited

A role model of a vibrant and dynamic institution

By Asif Baig Mirza
June 18 - 24, 2001

Director & Convenor Seminars & Publications Committee

This year serves as an important milestone in the history of Lahore Stock Exchange, for completing the 3rd decade of its existence. Initially formed by a group of 10 founding members, it was housed at a rented premises at Bank Square, Lahore. It completed its gestation period calmly and, in the absence of independent trading floor, it was seen, then, to be more active, in the trading of Bonus Vouchers.

In 1992, it moved to its present 9 storeyed building, started independent trading of shares, witnessed volume increases and, started demonstrating institutional vision, which had salutary effects, on the development of capital markets, in Pakistan.

By and large, the decade of 90's witnessed institutional deterioration and poor governance in the country through non-transparent policies; thereby creating horizontal and vertical imbalances in our economy. Contrary to this situation, stock exchanges in general and LSE in particular, have convered a long distance. The achievements of LSE can be highlighted as under:

(a) Role in infra-structural development

LSE played a participative role in the establishment of the following institutions, which were vital for the development of the capital market:

* Acted as a sponsoring shareholder in the establishment of 1st Credit rating agency, PACRA together with IFC & IBCA of London.
* Also, acted as a sponsoring shareholder for the establishment of Central Depository Company (CDC); thereby participating in the process of dematerialization of physical deliveries.
* Also participating in the establishment of proposed National Clearing Company.

(b) Prominent milestones

* It was the first Exchange to start the computerized trading since December 1996.
* It was also the first to start the carry-over trades through its trading engine.
* Odd lot trading was, also, arranged first by LSE through the system.
* It was the first Exchange of the country to have ISO - 9002 Certification from M/s. Moody's Int., in the year, 2000.
* In realization of investors' importance and the transparent dispute resolution system, the Member-Client Arbitration Committee has been formed, its procedure laid down and having non-member directors, especially a retired judge, for adjudication, is a credible development.

(c) Pioneering Role in Computerized Trading

I.T. is a "buzz" word today but its importance was realized by the management in 1994. LSE was the pioneer in conceiving the idea of computerized trading, selected M/s. EFA Int., a Canadian Software vendor, financed the whole project through mobilization of its own resources and on Dec. 1996, it created history, for being the first Exchange, to have fully automated trading system. The skilful management of this cultural change, not only enhanced the institutional image; but also produced positive results for all the stakeholders. It brought comfort feeling to investors through transparency, and efficiency, resulting in discovery of better prices for their trades. There was a quantum jump in the trading volumes and was instrumental in creating more depth in the market.

MIS Department at LSE, has really proved to be a jewel in the crown. Initially, it had developed its won settlement system, followed by a system for exposure monitoring on real time basis. Being conscious of the capacity limitations, especially in case of volatility and sudden volume increases; it had embarked on a challenging project of developing its own trading system. By the Grace of Almighty Allah, it has successfully developed its own, state of the art, hardware based, "ULTRA Trade system" with tremendously enhanced capacity, which is operational since the year 2000. The benchmarking of this system at, Unisys Lab, in USA, is already complete.

The said technological achievement is bound to open new vistas for the Exchange. The system has already been sold to the Karachi Stock Exchange and LSE's participation in the forthcoming ITCN exhibition should be a road show, to present it globally, at a very competitive price, to small and medium sized exchanges. LSE, being member of the two regional forums, i.e. Federation of Euro-Asian Stock Exchanges (FEAS) and South Asian Federation of Exchanges (SAFE), is ideally placed to market this system to their member countries.

(d) Administrative re-structuring

To ensure capital market reforms, LSE has been able to finalize the following re-structuring work:-

* Appointment of full time paid M.D./CEO with complete operational independence in 1998.
* Appointment of M.D./CEO on the Governing Board of Directors alongwith 7 non-member directors as SECP nominees, since 1998.

The induction of the elite professionals, as non-member directors has not only magnified the stature of the Board; but, also, has significantly enhanced the multi-dimensional inputs, resulting in the professional appraisal of the issues, at hand.

(e) Role in the Promotion of Academic/Research Activity

* LSE is conscious of playing institutional role through promoting awareness, disseminating knowledge, and providing useful feedback on matters of national importance.
* In patronizing merit and excellence, it has been sponsoring gold medal for the MBA position holder of Institute of Business Administration, University of the Punjab.
* The Exchange has started giving scholarships to needy students, under set criteria.
* It has widely opened its doors to students for doing internships and offered itself as a model for conducting any academic exercise and for doing any analytical/research work.

(f) Market Size
As on 28.2.2001

* No. of listed companies


* No. of TFC's & Bonds


*Paid-up capital of listed cos.

Rs. 227.725 billion

* Market capitalization

Rs. 398.08 billion

* Average daily turnover

34, 080,674 shares

* Average value trade

Rs. 1,413,550,362

(g) Future strategy

* LSE is preparing to move-over, soon, to T+3 Continuous Net. Settlement system in co-ordination with other Exchanges of the Country.
* It does realize the importance of E-Trade. Developing linkages and providing remote access, has been recognized, as a priority. MIS department is more than half way through in developing the software, for Internet trading.
* The management is inclined to bring amendments in the Articles; thereby strengthening the office of the M.D./CEO and increasing the strength and role of the non-member directors and election of the Chairman, Vice Chairman indirectly.
* Risk pre-emption and its management is, undoubtedly, the top most priority. Surveillance Department at LSE, is planned to be established, to ensure smooth functioning and , to arrest unfair trade practices.
* The management is conscious that technological development is capable to make the exchanges geographically neutral. The massive investments in hardware/software by the three stock exchanges in the face of redundant capacity alongwith duplication of costs, for all the participants, is likely to bring compulsive change in the mind set, with merger being the only viable option. The Board has already formed a committee to prepare a report, from this angle.
* The management is cognizant of the fact that de-mutualisation of the Exchange, is the ultimate future. The Board has, also, made a special committee to do the ground work, towards this end.
* The exchange intends to capitalize on its achievements through generation of resources, for frothier developmental works, by marketing its settlement system, exposure monitoring system and ULTRA Trade System.
* The Exchange as a member of SAFE & FEAS, plans to benefit from its technological lead and is keen to participate in cross-border listing, once the Capital Account Convertibility, is allowed in the member countries.