KSE 30 and KSE 100, both allow shareholders to compare stock price performances over a given time period and hence set standards for it. In view of the fact, both these indicators perform similarly to other gauges that follow numerous sectors of Pakistan's economic activity such as GNP and Consumer Price Index.
However, the method of calculating both the index varies. While KSE 30 is measured through the Free-Float Market Capitalization, KSE100 index happens to be a basket of price and the number of shares outstanding whereby the worth of the basket is compared on a regular basis to a starting point or a base period. It should be kept in mind that The KSE-100 index contains a sample of 100 representative common stocks with the base value of 1,000 points. One may wonder that calculating the KSE100 index might seem easier. Nonetheless, in conformity with the methodology of measuring KSE30, the level of index at a certain time period, be it any for that matter, reflects the free-float market value of 30 companies in relation to the base period. Therefore, the free-float methodology refers to an index construction method that takes into account only the market capitalization of freefloat shares of a company for the purpose of index calculation.
Also it is worth mentioning that the other indices in Karachi Stock Exchange represent total return of the market. This points towards the fact that, when a company declares a dividend, the other indices at KSE are not in tuned for that amount of dividend (whether cash or bonus).Contrarily, KSE-30 Index is adjusted for dividends and right shares and therefore, giving it a unique feature from KSE100 Index.
Summing it up, both of these indices provide a susceptible guide of general buoyancy and confidence in the economy.
Discuss theses terms of KSE: Odd-lot, defaulter counter, de-listed companies, provisionally listed companies, future market.
Odd-lot
The purpose of establishing this market is to allow the investors to trade by providing an automated platform through KATS. The trading takes places in securities in lots which are less than usual trading lots of securities that have been agreed by the Ready Market. Buying or selling of One share is the minimum that could take place.
Keeping in view the current scenario of KSE, it came up with the idea of finish trading of off lot securities in the market in order to save up the smaller investors who are feared to incur losses when they invest in odd lot shares.
defaulter counter
These happen to be the companies that do not obey the bourse's Listing Regulation 32(1). Henceforth, The government appointees takeover those companies and go through the obligatory winding up process which consist of liquidation assets owned by the company and payment of all obligations and liabilities it has. This might be a good act, as one may wonder, nonetheless, small shareholder do not benefit as they still end up winning nothing. The reason being, when the company endures enforced liquidation process and a sum of money is realised, creditors including banks would be the very first one in the line for the settlement of their debts. Thereby, small investor, being 'owner' of the company would ultimately be the last one to receive.
Under provisions of section 32(1) of the KSE Listing Regulations, if a company is quoted below 50 per cent of face value for a continuous period of three years; it has been unsuccessful to declare dividend/bonus for five years from the date of last declaration or failure to hold Annual General Meeting for a continuous period of three year; if the company is under liquidation; if it has not paid annual listing fee for a period of two years and if an eligible company fails to join the Central Depository System (CDS) shall be listed as a defaulter.
de-listed companies
When companies fail to maintain the requirements set forth by their exchange, it results in its delisting. Ability to meet filing deadlines or poor performance is one of the indicators that results in a companies delisting.
All major stock exchanges have some sort of filing requirement for listed companies along with Stock performance being another factor in determining whether or not a company will retain the privilege of being listed on an exchange.
provisionally listed companies
Future Market
It is a market in which the actors can purchase and sell commodities and their future delivery contracts. It operates with the aim of minimizing the risk that prevails due to uncertainty about the prices in the future. It also provides services such as that of hedging and speculation.
What is KSE 100 index? Discuss what does increase of decrease in points mean?
KSE 100 allow shareholders to compare stock price performances over a given time period and hence set standards for it. In view of the fact, this indicator perform similarly to other gauges that follow numerous sectors of Pakistan's economic activity such as GNP and Consumer Price Index.
The method of calculating KSE100 index happens to be a basket of price and the number of shares outstanding whereby the worth of the basket is compared on a regular basis to a starting point or a base period. It should be kept in mind that The KSE-100 index contains a sample of 100 representative common stocks with the base value of 1,000 points. One may wonder that calculating the KSE100 index might seem easier because it is one of the simplest form to provide a susceptible guide of general buoyancy and confidence in the economy.
What is KMI index, how it is formed and why it was introduced?
KMI is the abbreviation for Key Management Infrastructure which is formed with the joint collaboration of KSE and Meezan Bank for the sole purpose of serving those banks that operate on Islamic Sharia. Its function is to measure the performance of the Shariah Compliant equity investments and to provide its expertise that it posses on Sharia, guidelines, skills and stocks screening towards the activities with regard to launching and continuation process of the Index
There is a number of thirty companies that it can select and only those who are fulfilling the qualified criteria will be chosen for that. These criteria demands that the business of the invested company should be Halal. For that reason, investment in shares of conventional banks, insurance companies, leasing companies, Mudarabah companies, companies dealing in alcohol etc are not permissible as they constitute Unislamic practices. There is a proper screening course of action which is done by Meezan Bank by investigating and scrutinizing the financial statements of the company and thereby deciding whether company is eligible or not ; if not than that company is screened out and hence another company is chosen from the pool.
3. Discuss how margin financing works at KSE? (the detailed method of where the funds are obtained from and how funds are then lent to investors )
Margin financing allows you to buy more stocks than you'd be able to do normally. And thus in order to carry out transactions on margin, you ought to have an account. Such an account doesn't happen to be an ordinary account, rather it is created specially for the sole aim of marginal trading. Once the account is opened and becomes active, you can borrow up to a percentage of the purchase price of a stock.
there are certain obligations that have to be fulfilled while keeping the loans in one's possession. First, when you sell the stock in a margin account, the income go to your broker against the repayment of the loan. This process shall stop once your loan is fully paid. Second, there is also a constraint called the maintenance margin, which is the minimum account balance you must maintain before your broker will force you to deposit more or sell stock to pay down your loan. When this happens, it's known as a "margin call".
There are certain drawback of Margin:
Margin able securities in the account are collateral and thus one has to pay the interest over the loan. Until you decide to make the complete payment, interest charges shall be levied onto your account. Resultantly with the passage of time, your debt level increases as interest charges accrue against you. As debt increases, the interest charges increase, and so on. Therefore, buying on margin is mainly used for short-term investments. The longer you hold an investment, the greater a return you need to break even. So if you hold an investment on margin for a long period of time, the odds that you will make a profit are stacked against you.
7. Summarize the Listing Regulations of KSE for "Equity Listing on Normal Counter" which are necessary for a company to get listed on KSE.
Listing Criteria:
If the directors of the company violate the KSE rules and regulations they shall not be listed on the exchange. Likewise, if they are a part of default list of state bank, in that case they shall not be allowed to get listed either. Similarly, Company cannot be listed if it is in contact with the company who is on the default list.
The prospectus should include:
Audited financial statements and accounts should not be audited by more than six months
Financial charges, interest mark up and other things should be properly explain in the financial plan
Explanation of the projects and things that could be used in the benefits for the investors is included in it
A company which is having equity less than 40% and in losses from the last years should not be listed
The minimum paid up capital for listing companies is 200 million
Offers to the public must be in accordance with listing regulations and refer to regulation no 6&7.
Neither a person is allowed to work for the company who is not satisfying the criteria of KSE nor a company is allowed to be listed to the KSE whose higher authorities are in a default list or they are working with such a company who is listed as a default
Differentiate between CDC and NCCPL? Remember to give clear cut points of distinctions between the two companies; only discussing their functions will not serve the purpose.
Central Depository System is an Electronic Book Entry System for the documentation and sustenance of securities and it also works to register their transfer or movement. In such a system, it doesn't matter if the physical movement of securities doesn't take place; the ownership will be transferred as soon as securities move from one account to another. On the other hand, NCCPL comes under the umbrella of the Capital Market in Pakistan which has a goal to make the Capital market much stronger and thriving than it is currently. Thus NCCPL is indeed working towards it objectives by making sure that expansion and opulence takes place in the Capital market of our country.
Can a broker go bankrupt? How?
The fact that brokers earns a lot through the means of imposing commission on their services, issuing a secure line of credit in the form of margin accounts hence they remain in the game of buying and selling for quite some time .
However, one might be making a sweeping statement by saying that they can never go bankrupt. Broker, be it a Stock Broker or a real estate broker, can go personally bankrupt just the way a common man can. Therefore, yes, there is a possibility. In general, the only reasons that brokerages go bankrupt are crass unprofessional conduct, deception, scam or some other kind of illicit activity.
Elaborating it further, on contacting your broker, if he/she doesn't respond, one should realize it is an alarming situation. This is because, most major brokerages offer swift customer service with low hold times. However, if you're working with a small brokerage, there's good basis to sense tense if no one picks up the phone when you call.
Additionally, If you don't see your brokerage at all in that database, it's a definite sign that you may have fallen victim to brokerage hoax. If the brokerage were legal and genuine, it would have an entry in the appropriate government database, regardless of any financial difficulties it may be experiencing.
However, in order to protect investors, there are certain countries that require brokers to set apart clients' funds according to the country's financial regulations so that in the event of a broker's bankruptcy, clients would be considered secured creditors and hence do not end up losing a lot.
While entrusting a broker with your capital, one should do some homework him/her self and investigate certain facts such as is the broker regulated, what regulatory organization are they registered with and what protections does it afford you, are client funds insured against fraud and lastly, are client funds insured against bankruptcy?
Discuss at least 3 internet website from which you can obtain historical share prices data of Pakistani firms. Also tell the steps in which you can do so?
http://www.pagespak.com/get-stock-history.asp
http://www.kse.com.pk/
http://www.safe-asia.com/
There are two steps involved. Firstly, you select on the symbol of the stock and the period for whch you want to know the past prices data. Thereby, in another window the results are generated in graphical form.
