Most significant development is the introduction of unified trading system between Islamabad and Lahore stock exchanges w.e.f 30th of this month.

Apr 23 - 29, 2007

The outgoing year saw many significant changes in the securities market in Pakistan as well as in interaction areas. Like other stock markets in the country, Islamabad Stock Exchange (ISE) also experienced these ups and downs. The overall situation however, remained positive with a rather slow growth rate. It is now gaining momentum for the last few weeks.

The total listed capacity during the year showed an increase of over 11 percent starting from Rs.337 billion to Rs.380 billion at the close of the year 2006. Market capitalization, however, recorded a remarkable surge starting from Rs.1558 billion to Rs.2101 billion -showing an increase of 35 percent.

The ISE is the youngest stock exchange of Pakistan. It has shown a great progress since its inception. At the moment the ISE has over 19 members. Of them, only 39 are operating as brokers. There are 240 companies listed at ISE. Total listed paid-up capital is around Rs.380 billion with market worth Rs.2210 billion. The average daily turnover is not in a good state as only 200,000 shares volume is recorded at the ISE's system, whereas the major chunk of the trade is routed through KSE.

The most significant development which is being described by the professional experts as a landmark in the history of capital market in Pakistan is the introduction of unified trading system (UTS) between ISE and Lahore Stock Exchange (LSE) w.e.f 30th of this month. Explaining the concept and its background, Mr. Ahmed Noman, Secretary of ISE, told PAGE that the dreary market activities at ISE led the management to contemplate untraditional and more dynamic ways to create a vibrant market. Establishment of National Market system was the core idea that was conceived by the ISE whereby a joint pool of liquidity was to be created. Efforts were mobilized upon launch of this concept to get the support from the other two bourses. However, these efforts resulted only in the acceptance of idea by LSE whereby both ISE and LSE have now agreed to establish a Unified Trading System (UTS). A MoU was signed between two exchanges on 16th June 2006 whereby it was agreed in principle to form the UTS for commonly listed securities across all market segments.

A Joint Steering Committee (JSC) was formed by the broads of two bourses. After having consensus on the requisite IT and regulatory issues, a formal agreement was executed in a prestigious function organized for the purpose on 26th August 2006 at PC Bhurban. The process of framing regulations for UTS is in final stages. The IT development is also under process. Necessary equipment has also been purchased for the purpose. All out focus has been made in the direction that the system must commence in the first half of the financial year 2006-07.

The salient features of the UTS are as under: -

a) ISE and LSE would continue to maintain their independent existence, assets, income, and regulatory responsibilities. UTS would not be a merger of the two exchanges.

b) UTS would enable ISE and LSE to create a larger pool of liquidity by combining their turnover and bringing back the order flow that is routed by the members of the ISE and LSE to members of the premier exchange. Turnover executed at ISE and LSE in 2005 is 3 million and 71.5 million shares per day, respectively. Based on 2005 turnover, estimated turnover executed by members of ISE and LSE at the premier exchange is 20 million and 30 million shares per day, respectively. More than 90% of trading activity in ready market takes place in 27 securities, which are already listed at both ISE and LSE.

c) Members of ISE would pay to members of LSE market access fee of 2 paisa per share traded in those trades in which one side to the trade is member of ISE and on the other a member of LSE, subject to some agreed exemptions.

d) Each exchange would charge laga on traded value, as at present, on those trades in which the order originated from its trading terminal.

e) LSE and ISE would implement the same framework for management of settlement risk, including margins and capital adequacy for their members; however, settlement risk of each exchange would be kept separate. In case of default by member of any one exchange, the exchange of the defaulting member would fulfill any settlement shortfall that could be caused to the members of the other exchange.

f) The CFS cap of each exchange would be separately maintained.

g) UTS would offer investors significant advantages including greater liquidity, better price discovery, better quality of execution, and control over custody of their securities and payments.

h) Core advantage of UTS to the members of LSE would be the receipt of recurring market access fee. There would be a strong potential for growth in market access fee as more and more ISE members would likely become trading members.

i) Laga income of both the exchanges would substantially increase when more orders would be executed through UTS. Greater liquidity at the UTS would also help in activating futures segment and attracting institutional business.

j) Core advantage of UTS to members of ISE would be a direct access to a larger market and elimination of control issues (regarding custody of securities and payments) that they have to face while trading through the members of other exchange.

Another noteworthy development taking place at the Islamabad Stock Exchange is the construction of 119 storied Islamabad Stock Exchange Towers. The foundation stone laying ceremony was performed by Prime Minister Shaukat Aziz in March 2006.

According to the future plans, the building shall house the registered offices of the National Stock Exchange, which shall have its head office in Karachi. Besides, many other capital markets-related institutions shall also be provided accommodation under the same roof so as to provide a convenient venue to the investors of the region. The ISE plans to enable all the businesses within this building to stay in constant touch with other financial markets of the world through most modern and next generation data communication facilities in the building. Already many banks and other financial institutions have submitted their expressions of interest for suitable accommodation in the building, pointing out to the rising demand for the most prestigious office location in Islamabad.

The contract for construction of phase 1 of ISE tower has been awarded to M/s Nespak, which has been appointed as the consultant of the project. The ISE tower will be a landmark building destined to become a true investment and financial center of the capital city of Islamabad.