INTERVIEW WITH MD/CEO LSE

LSE TO BRING NEW PRODUCTS FOR GROWTH

KANWAL SALEEM
July 14 - 20, 2008

LAHORE: Established in October 1970, Lahore Stock Exchange is the second largest stock exchange in the country with a market share of around 12-16% in terms of daily traded volumes. LSE has over 520 listed companies, spanning 37 sectors of the economy, that are listed on the Exchange with total listed capital of around Rs. 555.67 billion having market capitalization of around Rs. 3.64 trillion. LSE has 152 members of them 81 are corporate and 54 are individual members. Over the years, LSE has successfully met various challenges and has now emerged, fully geared and positioned to aggressively compete with its fellow Exchanges, contributing towards the growth of Capital Markets in Pakistan.

Mian Shakeel Aslam is the Managing Director and CEO of the Lahore Stock Exchange. He is highly qualified and humble person who is not only playing his due role for the betterment of the exchange but also determined to take it to the new heights through introduction of new products i.e. derivatives products and developing the bond market.

In an interview with PAGE, Mian Shakeel Aslam said number of significant initiatives has been taken to improve the regulatory regime and the trading environment for the benefit of Institutional Investors as well as listed companies. Elaborating, he said the LSE was the first Exchange in the country to undertake automation of trading at the exchanges in 1994. LSE has made large investments in technology & automation to keep pace with globalization of securities trading. The Exchange is fully committed to providing a transparent, efficient, fair and investor friendly environment for the benefit of Investors and Issuers. "The goal is to bring LSE up to international standards in operational, technical, regulatory and quality management areas and to ensure that not only domestic but also foreign investors are attracted'', he added.

Mian Shakeel further said that the LSE has made direct investment in Pakistan Credit Rating Agency (Pvt) Ltd. (PACRA), Central Depository Company Ltd. (CDC), National Clearing Company of Pakistan Ltd. (NCCPL), and National Commodity Exchange Ltd. (NCEL), all of which play a central role in developing the infrastructure around the financial markets of Pakistan. In addition, LSE is an active member of the Federation of Euro-Asian Stock Exchanges (FEAS) and the South Asian Federation of Exchanges (SAFE), helping to expand its outreach, presence and profile beyond the boundaries of Pakistan. Further, LSE was the first Exchange in Pakistan to offer Internet based trading to its members in the year 2001. It enables the brokers to reach out to the untapped retail markets. Currently, more than 50% of the total trading volume at the LSE originates from Internet trading terminals. The aim of this measure is to transform the LSE from a regional to a national player over a period of time.

He further said that the LSE has increased its geographical outreach by establishing its branches in other cities of the Province. Two such branch offices have become operational in Faisalabad and Sialkot. Similar Offices in other cities are also being contemplated. LSE's trading system has already been modified to connect branch offices in real-time fashion. There is a growing need for remote trading terminals reflecting the confidence of traders in the use of stable Internet Trading Systems, he added.

He said the LSE has improved the quality of operations and upgraded them to modern international standards. This has included upgrading LSE's IT infrastructure, updating regulations and procedures to incorporate existing and expected technological changes, as well as reorganizing and restructuring the workforce. As a result, LSE's capabilities as both a front-line regulatory body and a service organization have been significantly enhanced. LSE has successfully launched Unique Identification Number (UIN) System with an objective to bring more efficiency and transparency to the stock business and to improve the surveillance and monitoring capacity of the Exchange.

He further said that the LSE has implemented a regular timetable for the Broker System Audit in order to build investors' confidence. Also, LSE has taken effective risk and exposure management measures including the implementation of a fully automated in-house developed Trade Risk Filter (TRF) to efficiently monitor members' pre-trading exposures on a real time basis. This has been a quantum leap for LSE in improving its risk management systems.

Highlighting the performance of the LSE during FY07, Mian Shakeel 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 positively impact on our markets during the year under review. 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.

Turnover of ready market shares was an average of 33.78 million shares per day as against 61.26 million shares traded daily on average during 2005-06. The traded value decreased to an average of Rs.3.44 billion per day as against Rs.6.05 billion worth of shares that were traded daily on average during 2005-06. The decrease in volume is mainly due to doubling of CVT on purchase of shares and other transaction taxes on trades with effect from July 01, 2006, he added. He said the market capitalization of LSE stood at Rs.2.693 trillion equal to US$45 billion approximately on July 01, 2006 and Rs.3.860 trillion equal to US$64 billion approximately on June 30, 2007, representing an increase of 43% for the period.

During this period, 25 new securities were listed at LSE, of which 10 were new companies with listed capital Rs.47.412 billion, 11 were open ended funds and 4 were Term Finance Certificates with total issue size of Rs.2.050 billion. Listed capital increased by 26% from Rs.470 billion to Rs.595 billion. Further, LSE through a capital markets expert conducted a research study for the development of the Corporate Bonds/TFCs segment of LSE's business. The Exchange is in the process of implementing some of the recommendations of this study as a result of which issuers are being urged to appoint a Market Maker for all issues of TFCs in an effort to promote the secondary market of these products, he added.

Mian Shakeel further said that one major step taken by international and some of the regional bourses is the demutualization and integration of exchanges.

Answering a question, he said fundamentals of the market are strong but panic and political uncertainty is leading the index downward. He said the small investors should not indulge in panic selling and invest in dividend paying shares.

He said the processing time for listing of new companies in the LSE is less when compared with other exchanges.