INTERVIEW WITH MD/CEO LSE
THERE ARE NEEDS OF NEW PRODUCTS AND INVESTOR EDUCATION
AMANULLAH BASHAR & KANWAL SALEEM
Updated Mar 20, 2010
Established in October 1970, Lahore Stock Exchange (LSE) was established in October 1970 and is the second largest stock exchange in the country with a good market share in terms of daily traded volumes.
LSE has over 500 companies, spanning 37 sectors of the economy that are listed on the exchange. LSE has 152 members of whom 81 are corporate and 54 are individual members.
Activities of LSE have increased significantly in all operational areas since its inception. 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 sitting Managing Director and Chief Executive Officer of LSE. He is an ACA from The Institute of Chartered Accountants of England and Wales (ICAEW) having also graduated with first class from the UK. He has a number of years of multinational and international experience in England with the likes of KPMG and Merrill Lynch amongst others, gaining rich and diverse experience of the financial and capital markets.
Mian Shakeel Aslam joined Lahore Stock Exchange in 2006 as the general manager/chief operating officer and assumed the position of managing director and chief executive officer in 2008. He is currently serving on the board of National Clearing Company Pakistan (NCCPL), Institute of Capital Markets (ICM) and the Pakistan Credit Rating Agency (PACRA) as well as having served as a Director on the Board of the Central Depository Company of Pakistan (CDCPL).
Mian Shakeel Aslam is also the chairman of the audit committees of both NCCPL and PACRA.
He has also represented the Lahore Stock Exchange on a number of international forums including but not limited to the Federation of Euro Asian Exchanges (FEAS), South Asian Federation of Exchanges (SAFE) and Organization of Islamic Countries Stock Exchanges (OIC), actively participating in various working committees / projects of these respective federations.
In an exclusive interview with Pakistan and Gulf Economist (Page), Mian Shakeel Aslam shared his views on the country's economic situation, performance of LSE, initiatives taken by him in the LSE and other market related issues.
Mian Shakeel Aslam said, "a number of significant initiatives have been taken to improve the regulatory regime and the trading environment for the benefit of institutional investors as well as listed companies. LSE was the first exchange in the country to undertake automation of trading at the exchange in 1994. LSE has made large investments in technology & automation to keep pace with the 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."
He said the goal was 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 said LSE had made direct investment in PACRA, CDC, NCCPL, and 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.
He said the LSE was the first exchange in Pakistan to have offered 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. He further said the LSE had 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.
Mian Shakeel Aslam said the LSE had 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. LSE has implemented a regular timetable for the Broker System Audit, in order to build investors' confidence. 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."
Mian Shakeel Aslam said, "Pakistan's real GDP growth rate for FY 08-09 was 2.4% as against 4.1% for FY 07-08 and 6.8% for FY 06-07. The economy's growth in FY 08-09 has decelerated owing to prevailing global recession, higher commodity prices, especially in the 3rd quarter of 2008, massive erosion of foreign exchange reserves, bringing it down to around $5billion and resulting into over 30% currency depreciation. Service sector growth was only 3.6% against 6.6% and 7% of 2008 and 2007 respectively. In the current fiscal year, manufacturing sector declined by 3.3% (FY 07-08: growth by 4.8%), and the agriculture sector grew by 4.7% (FY08: 1.1 %).î
He said the power outages resulted into massive reduction in productivity levels and unprecedented job redundancies and lower tax collection, which amounted to over Rs. 1.15 trillion.
He said the interest-rate structure was still high and the business environment very challenging.
Mian Shakeel Aslam said, "LSE-25 Index at the start of the year 2008-09 was at 3,830 points with a market capitalization of Rs. 3,498 billion. The LSE-25 closed the year at 2,132 points with a market capitalization of Rs. 2,018 billion, having bottomed at 1,300 points in late January 2009. Listed capital increased by 10% from Rs. 665 billion to Rs. 728 billion during the year."
"Turnover of ready section shares on an average for the year was at 11.23 million shares per day (amounting to an average of Rs. 422 million of value traded per day). LSE witnessed one of its most volatile trading years when the index was frozen on August 27, 2008 levels, as the case for the other stock exchanges of Pakistan too. This market freeze was one of the reasons for the decrease in the trading volumes and also the value traded. The freeze meant that shares listed on the LSE could not trade below the price levels. At the time of the freeze, the LSE-25 index was at 2,875 and the index stood frozen for 11 O-day period, with virtually no trading activity taking place. This crisis put a severe strain on the liquidity of its members & their business."
About the listing activity, he said during 2008-09, 9 new securities were listed on the LSE, of which 2 were new companies, 4 were open-ended funds, 2 were Term Finance Certificates and 1 was a preference shares issue. The total issue size of these listings was Rs.12 billion. Total issues listed on the LSE were 511 as compared to 514 issues in the previous year.
Mian Shakeel Aslam said, "uniformity of rules and regulations has been a central theme and objective related to the regulatory regime set out by the SECP. In the given fiscal year, the LSE conducted 14 meetings of the trading affairs committee to fulfill trading needs and issues of the participants, as well as addressed rules and regulations changes sent by the SECP, which required extensive discussion, deliberation, and calibration. A number of trading regulations were amended during the year, which encompassed micro and macro structures. Pursuant to the market issue, which was from August 2008 to late 2008, CDC required many changes in its account opening form, which included formalizing and restricting movements in shares. These changes were duly discussed, refined and implemented in order to further protect the wider interests of the investors. The minimum lot size was changed to 1 from the previously set lot sizes, in order to ensure a more smooth market flow of transactions and to accommodate odd lots at the market price. This is aimed at allowing newer products like ETF's and a general increase in liquidity to be a permanent feature of the market."
The Deliverables Futures Market was restarted at LSE after the approval from the SECP. This restarting of the Deliverable Futures Market was done across all the exchanges thereby maintaining parity of facilities.
He further said the LSE had been able to improve its human capital, exercise cost efficiencies and has introduced performance based culture, which will result in improving the institutional capacity.
About Information Security Management System, he said the LSE had embarked on the Information Security Management System program and in order to achieve this goal, LSE has established a security organizational structure in its working environment. The emphasis of this project is to keep pace with the technological advancements of the modern era and to improve the security level in its information system. The idea is to achieve an international standard of information security by improving its existing processes and developing SOP's for effective implementation of each process. The International Standards Organization (ISO) refers this standard as IS027001. LSE will be one of the leading organizations of its type to achieve this level of Information Security in the country, he added.
About software process improvement, he said, being a technology leader in the financial sector of Pakistan, LSE had taken another initiative to get software development and testing processes standardized by adopting best practices of CMMI. International consultants have been engaged to assist managers of Project development and Quality Assurance divisions to formulate and implement best practices, as being observed by renowned software development firms.
Mian Shakeel Aslam said the LSE believes that "support services are face of an organization" and any technological innovation or advancement becomes useless without proper customer care services. LSE has recently revamped its support service section with support being available round the clock. The objective is to provide proactive resolution of technical problems to its national and international clients.
He said the LSE had worked to deliver trading software to Ghana Stock Exchange and had passed through the process successfully. Moreover, LSE has been awarded the mandate to develop Scrip Borrowing & Lending Software for NCCPL. As part of its mission of increasing awareness about the capital markets in Pakistan, Lahore Stock Exchange is conducting workshops and seminars for the awareness of public about the stock market, he said. LSE is also providing full scholarships to Lahore University of Management Sciences (LUMS) for studies of one undergraduate and one MBA, he added.
He said the rules and regulations of the LSE have been updated and processes have been formulated for their amendments as proposed by the SECR expeditiously. "LSE would continue with its efforts to increase its trading volumes through increasing its outreach and collaboration with other exchanges in this regard. It would 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," he said.
Mian Shakeel Aslam said there is huge potential in country's bourses. The need is to remove the misconceptions, introduce new products and educate the investors.