INTERVIEW WITH GM/COO LSE
Lahore Stock Exchange-Trends & Developments
KANWAL SALEEM, LAHORE
Nov 26 - Dec 02, 2007
Mian Shakeel Aslam, a qualified Chartered Accountant from UK, has been working for the Lahore Stock Exchange (LSE) in the capacity of General Manager & Chief Operating Officer since 2006. His rich credentials both academically and professionally from some of the most renowned and leading global institutions brings a fresh breadth of air for both the Lahore Stock Exchange (LSE) and the capital and financial markets of Pakistan in general.
At the age of just 34, Mian Shakeel Aslam is in the twilight of his professional career and having achieved many milestones thus far, is increasingly full of energy and spark and thriving with ambition and desire to help in the development and acceleration of the capital and financial markets of Pakistan.
Born in the city of Leeds in England, and belonging to a well respected and educated Lahore based business family, he moved back to Lahore at an early age from where the majority of his schooling took place at the prestigious Aitchison College. He attended both the Universities of Bristol and University of East Anglia in England after which he Joined KPMG (London) to undergo his Chartered Accountancy professional qualification. He completed his Chartered Accountancy qualification in 1999 becoming a member of the Institute of Chartered Accountants of England and Wales (ICAEW). After having spent nearly six years with KPMG in their London Office, he moved to Merrill Lynch (London) in 2002 where he was Vice President in the Global Markets and Investment Banking Division. In 2006 he moved back to Lahore and joined the LSE in capacity of General Manager and Chief Operating Officer.
In an interview with Pakistan and Gulf Economist (PAGE) Mian Shakeel Aslam talked about some of the major reforms and initiatives taken by the LSE in recent years.
STOCK MARKET PERFORMANCE (FY07):
During FY07, Mian Shakeel Aslam said the LSE-25 index increased from 4379 to close at 4850 on June 30, 2007 i.e. an increase of 471 points or 10% year-on-year. The period's high was on October 10, 2006 when the LSE-25 touched 5031. Improved economic indicators and enhanced corporate earnings are some of the factors having a positive impact on our markets. On the other hand unstable political conditions and increasing inflation and interest rates have been the negative factors. The first half of FY07 witnessed a decline of 8% while the second half saw an increase of 16% in LSE-25 index.
The market capitalization of LSE stood at Rs.2.693 trillion equivalent to US$45 billion approximately, on July 01, 2006 and Rs.3.860 trillion equivalent to US$64 billion approximately, on June 30, 2007, representing an increase of 43% for the period, he said.
RISK MANAGEMENT MEASURES
In order to mitigate risk and enhance investor protection, new risk management measures have been introduced. The key measures taken were the introduction of Value at Risk (VaR) based margins as well as the elimination of exposure netting across different markets, clients, scrips and settlement periods. Further, concentration limits were introduced in order to curb excessive exposures in the market as well as at the individual client and scrip level. All in all such measures amongst others, have helped to align the stock exchanges of Pakistan with their international counterparts, hence improving both local and international investor confidence in the stock markets of Pakistan, he said.
UNIFIED TRADING SYSTEM (UTS)
According to him, Lahore Stock Exchange and Islamabad Stock Exchange, jointly launched the UTS, a joint trading platform, on April 30, 07, in line with the UTS regulations mutually agreed by the Joint Steering Committee (JSC) of the two exchanges and subsequently approved by the Securities and Exchange Commission of Pakistan (SECP).
The UTS has helped to widen the geographical reach and confidence of investors through the elimination of market fragmentation, enhanced liquidity and better price discovery, with the ultimate aim of enhancing the revenue generation capacity of the two exchanges. In addition to the commercial benefits, the UTS has additionally provided a unique opportunity for enhanced cooperation and relationship building between the members and management of the two exchanges through various forums such as the JSC, Mian Shakeel Aslam said.
IT INITIATIVES AT LSE
Mian Shakeel Aslam said the LSE has undertaken several pioneering initiatives over the years with the objective of increasing trading volumes and facilitating members and investors by bringing trading opportunities to their doorsteps. "LSE had set-up its IT department in 1994 and was the first exchange to do so as we realized that such an initiative was necessary for our survival. We were the first ones to automate trading in Pakistan in 1996 and subsequently in the year 2000 indigenously developed a trading engine software named Ultra-trade, again for the first time in Pakistan", he said. This software was also sold to KSE and is also being currently used by Islamabad Stock Exchange. Further sales of this software also in the pipeline to overseas stock exchanges. In 2001 LSE started issuing Remote Trading Terminals i.e. enabling trading to be conducted from terminals based outside the premises of LSE over the internet. These Remote Terminals are issued to members who may issue these onward to their clients also. So far we have issued over 850 such terminals and are currently issuing around 200 such terminals every year. Several other softwares have also been developed by our IT department like back-office systems and risk management systems that greatly facilitate members to monitor their clients' exposures and margins on a real time basis that help them to expand their retail client base, he added.
CORPORATIZATION AND DEMUTUALIZATION
In order to expedite the process of corporatization and demutualization and in an effort to ensure a smooth transition, the SECP has circulated to all exchanges a draft of "The Stock Exchanges (Corporatization, Demutualization and Integration) Ordinance, 2007í. Through a thorough consultative process between the SECP and all exchanges the draft ordinance is in its final shape and awaiting sign-off from the President. As per the draft ordinance, effective corporatization and demutualization will occur when the LSE has converted from a company limited by Guarantee to one limited by shares and such shares having been initially issued to all members of the exchange of which 60% will need to be placed in a blocked account for subsequent disinvestment to Financial Institutions and the General Public. It is anticipated that the initial phase of corporatization and demutualization will be completed within the next few months. For this purpose, the services of Rothschild (UK), a renowned international investment bank, are being hired to deal with the commercial and financial aspects of this project.
Another pioneering initiative undertaken by Lahore Stock Exchange has been the establishment of Trading Floors in other cities of the country in an attempt to widen the geographical outreach to the investor community. First such trading floor was made operational in Faisalabad in 2004 and the second one became operational in 2005 in Sialkot. The stock exchange has provided the entire infra-structure to members on these floors to set-up their offices and trading is conducted on a real-time basis from these floors on to the main trading engine at Lahore. 32 members have their offices on the Faisalabad Trading Floor of LSE and 34 in Sialkot. Almost all of the clientele on these floors is retail in nature. Each of these floors generate 5 to 7% of our total daily trading volume. We have currently invited Expressions of Interest from our members to set up similar floors in Multan and Peshawar, he said.
TRAINING INSTITUTE & INVESTOR EDUCATION
In order to increase investor awareness and providing training and education to our members, their employees and investors in general, Lahore Stock Exchange has started a Training Institute in 2006. The Training Institute is the first and only institute of its kind in Pakistan with primary focus on Capital Markets only. The Institute is conducting courses on Stock Market for Capital Market Participants and the response so far is overwhelming. So far we have conducted several training programs for operating Trading Work Stations for our members and their employees. Training programs have also been held for general investors on Understanding Stock Markets as well as a training workshop for financial journalists. Other training programs for agents of members and others are also in the pipeline. Investor Awareness sessions have also been held in other cities like Faisalabad, Sialkot, Multan. In addition delegations from educational institutions from all over the country visit LSE and are given a day-long briefing on the workings of the stock exchange throughout the year on a very frequent and regular basis.
LSE will continue with its efforts to increase its trading volumes through increasing its outreach and collaboration with other exchanges in this regard. It will also continue to look after the interest of all its stakeholders including the investors, issuers and intermediaries as well as fulfill its role as the front-line regulator to make LSE as the exchange of choice for all the participants. However all of this will be possible only if efforts around transparency and corporate governance are accelerated.
A major challenge lying ahead for the exchange is its demutualization. This will have a major role to play in the overall reformation of the capital markets of Pakistan and through its successful implementation will enhance governance standards and transparency and ultimately investor's confidence. The Demutualization Committee and Management of the exchange through consultation with the SECP will be working tirelessly in its efforts to ensure a swift and timely transition, Mian Shakeel Aslam said.