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AN INTERNSHIP REPORT ON ISLAMABAD STOCK EXCHANGE GURANTEE LIMITED SUBMITTED TO: Madam Mehnaz Khan SUBMITTED BY: Mian Farrukh Raza MBA III(E) Department of Administrative Sciences Quaid-I-Azam University, Islamabad ACKNOWLEDGMENTS First of all I acknowledge the mercy of ALLAH who has given me ability to complete my internship program. I am grateful to Professor Dr. Naseer Ahmed (Chairman Department of Administrative Sciences). I also acknowledge the help of my course coordinator & Incharge internship program Professor GHULAM SHABBIR KHAN NIAZI who provided me guidance relating to my internship in Islamabad Stock Exchange. I am humbly grateful to our Venerable Teacher Madam Mehnaz khan, who furnished me with the opportunity to complete this project. Next, I am also grateful to Mr. Imtiaz Haider (Joint Director SECP) who helped me to arrange my Internship in well-established organization. I am also grateful to CEO of Zahid Latif Khan Securities Islamabad Stock Exchange & Secretary Islamabad Stock Exchange Mr.YOUSUF H.MAKHDUM who sent me to different departments & assigns me analytical jobs & emphasized on hard work. I am also thankful to my office companions who helped me to understand the whole functioning of Stock Exchange. I would also

acknowledge the cooperation of computer Section & Record Room that provides me informations & material to complete my assignments. Mian M. Farrukh Raza MBA (III) EXECUTIVE SUMMARY I applied for internship at Islamabad Stock Exchange. My application was accepted & I started my internship on 17 July 2003. I worked there up to 30th August 2003. This report is about my internship program. During my internship program I worked in different departments of I.S.E. The departments in which I worked are Record room, Finance Department, Internal Department, Investor Relations & Companies Affair Department. I worked in Record room for one week & was involved in receiving of letters & reports of the companies & updating their files. I worked in Finance department for two week & was involved in calculation & recording of salaries & recording of companies securities. I worked in Internal Control for one week & was involved in preparing the Daily Summary & Fluctuation Report. I worked in Company Affairs department for one week & was engaged in compiling the Rules & Regulations of I.S.E., which I have added to this Report. I also worked in Investor Relation Department for one week. During my internship I got a chance to work with Brokerage house. I worked In Zahid Latif Khan Securities, Islamabad. M i a n M . F a r r u k h R a z

MBA-III (E) CHAPTER-1 WHAT IS STOCK EXCHANGE Sock Exchange is a market where shares and securities are bought and sold by the Member/Broker on behalf of their clients and also on their accounts. Stock Exchange is a capital market. Deals on the Stock Exchange take place on open offers and bids which reflect the prevailing flow of supply and demand for the market. Stock Exchange enables the buyers and sellers to enter into transaction without the necessity of individual hawking. WHO NEEDS A STOCK EXCHANGE The Stock Exchange provides a way in which peoples savings can be put to work. A business needing new machinery or premises has two options. Either the company use the profits kept in the business or it will borrow from the bank. But Banks are willing to provide short-term finance. They are reluctant to provide money on a permanent basis for long-term projects. So companies turn to the public, inviting people to lend them money or take a share in the business, in exchange for a share in future profits. Stock Exchange acts as a bridge between the companies & the investors. The investor will not be prepared to entrust his savings to a company seeking cash for expansion, unless he can be sure that he would be able to get it out again. If the company has invested his money in launching a new product, it will not be able simply to hand it back. So these problems can be easily handled through a Stock Exchange. When the saver/investor needs his money back, he does not have to go to the company with whom he originally placed it. Instead, he sells his shares to some other saver/investor who is seeking to invest his money. Large companies need a way to tap the saving of the public at large. This they do by issuing stocks & shares in the business through the Stock Exchange. By doing so they can mobilize the savings of individuals and institutions. DIFFERENCE BETWEEN A STOCK EXCHANGE & OTHER MARKETS A market is a place where people meet to buy & sell. Most markets deal in goods that have a practical use. The producers on the one hand, provide a steady supply of the goods traded, and the consumers, on the other, provide a steady demand. The Stock Exchange deals with a different sort of commodity. The goods on sale, in themselves, have no intrinsic value. Stocks or shares certificates are evidence of your stake in a company, or, in case of Bonds, that you have lent money to the Government. These are important documents

& should be kept carefully, but these are not useful in the sense that foodstuff or raw materials for industry are. IMPORTANCE OF STOCK EXCHANGE The Stock Exchange is one of the most important instruments in mobilizing national resources & broad basing industrial ownership to promote economic development of a country. The Stock Exchange, the world over has assumed a very important & vital place in the sphere of industrial finance because of its role in promoting investment climate & capital formation. It also ensures the maximum opportunities for equity participation for growth & expansion of small & medium sized industries in the country. The Stock Exchange channelises the capital lying idle with the potential to industry and commerce. At the establishment of large-scale industries has been possible due to this institution. As such, the Stock Exchange constitutes an important segment of economy & helps to promote national prosperity & also contributes to the laudable objective of diffusion of ownership. The Stock Exchange provides necessary stimulant to institutions, working for promoting virtue of thrift, in carrying out their aims & objectives which are mainly to attract the savings of individuals, & to utilize such savings profitably for industrial development. With these actions of the capital market the base of industrial finance has greatly widened & a large number of small investors are induced to their savings in equity investment. With rapid economic development, the equity finance in private & public sectors has acquired vital importance because of more funds required for industrial expansion. It is obvious that for such a purpose the existence of the Stock Market becomes indispensable because through this institution alone it would be possible to mobilize savings of general public for investment & medium-sized industries either for setting up such industries or for their expansion, thereby increasing employment opportunities. The Stock Exchanges the world over is rightly considered as the barometers of the economy of their countries. The prospective investors look to the Stock Exchange for guidance for investment. HOW DOES STOCK EXCHANGE WORK? Stock Exchange is a market where shares & securities are bought & sold by the Members/Brokers on behalf of their clients and also on their accounts. Dealings on Stock Exchange take place by open offers and bid which reflect the prevailing flow of supply and demand for the market. The Stock Exchange enables buyers and sellers to enter into transaction without the necessity of individual hawking. ] The law of supply and demand determines the prices on the Stock Exchange floor. It also helps investors to choose good scripts, as before granting enlistments of a scrip, the Stock Exchange satisfies itself that the company is substantial, its shares are legally issued, its shares are widely

owned and the company agrees to issue adequate, timely public notices of its financial position and for closure of its book for the purpose of dividend, right issue and bonus issue. WHAT ARE STOCK SHARES? A share of stock represents ownership in a corporation. A corporation is owned by its shareholders (also known as stockholders) often thousands of people and institutions each owing a fraction of corporation. When you buy a share of corporation you become a part owner or shareholder, you immediately own a part, no matter how small, of every building, piece of office furniture, machinery whatever that company owns. As a shareholder, you stand to profit when the company profits. You are also legally entitled to a say in major policy decisions, such as whether to issue additional shares, sell the company to outside buyers, or change the board of directors. The rule is that each share has the same voting power, so the more shares you own, the greater your power. You can vote in person by attending a corporations annual meeting or you can vote by using an absentee ballot, called proxy, which is mailed before each meeting. The proxy allows a yes or No vote on a number of proposals. Alternatively, stockholders may authorize their votes to be cast consistently with the Board of Directors recommendations. There are a number of classes of shares and the most common are: 1. New Issues 2. Offer for Sale 1: NEW ISSUES For a new company in order to build up its capital it may issue lots of the capital to be raised. 2: OFFER FOR SALE In an existing company where the majority shareholding is held by a holding company, the latter may sell its shares to the public with or without a premium to broad base the company. * A premium is additional money requested by the company on each share on any issue, over and above its par value. When an unquoted company applies for Stock Exchange listing, a firm that is a member of the Stock Exchange must sponsor it. This sponsoring member firm has the responsibility of ensuring that the company meets the requirements for listing, and carries out the necessary procedures to

ensure a successful issue for the companys shares e.g. by advising on an issue price for the shares, or by trying to attract institutional investors in buying some of the shares. A Company about to issue new securities in order to raise finance might decide to have the issue underwritten. Underwriters are financial institutions or individuals who agree, in exchange for a fixed fee, to purchase at the issue price any securities, which are not subscribed for by the public. WHY DOES THE STOCK MARKET RISE & FALL The market as whole does well when many people invest; it suffers when investment activity is down. A number of factors influence whether and why people buy stocks. Some of these factors are economic, productivity level in the economy, interest rates and exchange rates. Ample money supply stimulates investments of all kinds; tight money holds them down. Changes in tax rates can also have an impact on stock buying patterns. In addition, investors often consider the influence of social or political factors upon economic stability. The unsettling economic effect of domestic unrest, pending elections or international conflict can make investors cautious and slow down stock market activity. WHAT IS KSE-100 INDEX The KSE-100 contains a representative sample of common stocks that trade on the KARACHI Stock Exchange. The KSE stocks that comprise the index have a total market value of Rs.114 Billion for over 500 stocks on the Karachi Stock Exchange as on November 1st, 1991. In the simple form, the KSE-100 index is a basket of price and the number of shares outstanding. The value of the basket is regularly compared to a starting point or a base period i.e. 01-11-1991, to make the computations simple, the total market value of the base period has been adjusted to 1000 points. Thus, the total market value of the base period has been assigned a value of 1000 points. The formula for calculating KSE-100 is: Sum of shares outstanding * Price for period * 1000 Sum of shares outstanding * Price for base period For example Suppose the price of 100 shares in the index increase to Rs. 57.900 Billion as compared to the base price of Rs. 57.281 billion, then index will move to 1010.8 i.e. by 10.8 points as shown on the next page. 57.900*1000 = 1010.8 57.281

WHAT IS MEANT BY BULLS & BEARS? The market goes through cycles, tending upwards for periods of time, then reversing itself, and vice versa. Arising period is known a BULL MARKET. Bulls are being the market optimists who cause prices to rise. A BEAR MARKET is a falling market, where the pessimists are driving prices lower. The stock market is a constant attack sweeping their paws downward while bulls toss their horns upward. A useful struggle between the bulls and the bears, both groups tugging in opposite directions. Popular notions abound regarding the origin of these labels. One common myth is that the terms reflect the animals method of attack-bears but not the true origin. CHAPTER#2HISTORY OF ISLAMABAD STOCK EXCHANE The Islamabad Stock Exchange (ISE) was incorporated as a guarantee limited Company on 25th October, 1989 in Islamabad Capital territory of Pakistan with the main object of setting up of a trading and settlement infrastructure, information system, skilled resources, accessibility and a fair and orderly market place that ranks with the best in the world. The purpose for establishment of the stock exchange in Islamabad was to cater to the needs of less developed areas of the northern part of Pakistan. The ISE has set the highest standards of operational efficiency and is committed to support a climate of confidence and optimism that encourages and promotes trading activity. It also provides for conducive environment to channelize the small investments of the residents of less developed areas. The ISE offers an easy access to both domestic as well as foreign investors and actively encourages the listing of eligible and profitable companies, both large and small to make it an exciting and diverse Exchange. The Exchange is playing a pivotal role for economic growth of the area thereby contributing towards the overall economic prosperity and welfare of the country. At present there are 104 members out of whom 39 are corporate bodies including commercial and investment banks, DFIs and brokerage houses. The other 65 Members are individual persons who are well educated, enterprising and progressive minded. The Board of Directors governs the affairs of the Exchange. The Board of Directors consists of ten directors, of which five are elected member directors and four are non-member directors nominated by the SECP while the managing director by virtue of his office is the tenth director of the Board. In order to protect the interest of the investing public, an Investors Protection fund has been established by Exchange. Since the inception of automated trading system (ISECTS), the trade volume has been multiplying day by day and the average daily turnover has now crossed the figure of 10 million shares. The automated system, which was indigenously developed, replaced the outcry system in 1997. Now all the listed securities are traded through the ISECTS. The system of physical handling of shares and securities has been phased out and majority of the scripts are settled through Central Depository Company of Pakistan Limited.

At the moment there are 264 companies/securities listed on the Exchange with an aggregate capital of Rs. 225409.110 million. The market capitalization stood at Rs. 476747.478 million as on 07-08-2003. The pace of listing has remained slow as the economy of the Country is under consistent pressure due to internal as well as external factors. In comparison with major financial markets around the World, the functioning of capital market in Pakistan is still very much in its infancy and lacks advanced technology. In this context efforts are being made to bring ISE in line with the International system and methodology. ISE NET WORK INDEX The index used in Islamabad Stock Exchange up to 30th Nov., 1995 was KSE100 index. But from 30th Nov. 1995 I.S.E. start to use their own index. ISE had initiated development of composite index in Nov. 1995 to facilitate the investors and working of the Exchange. The composite index is now complete and is in operation. This index is called Price composite index. The index depend upon the market price of shares, if index goes high then the market will rise & vice versa .It was developed by Vital Information Services (pvt) Limited, a leading financial rating and data-base Company. Its history and formulation is as under: Base Date = 30th November, 1995 Date of officially publication = 1st March, 1996 Total companies =259(excluded TFC Packages) (At the time of formulation) Base Figure = 1000 Formulation Let there be three scrip A, B, C When T =T0 A =10.00 B =15.00 C =20.00 Calculated by Geometric Mean (statistically method)

G.M = {log (10.00)+log (15.00)+log (20.00)}/3 =(1+1.17+1.30)/3 =1.15 =Antilog (1.15) =13.48 When t=t1 A = 12.00 B = 17.00 C = 25.00 G.M = {log(12.00)+log(17.00)+log(25.00)}/3 =(1.07+1.23+1.39)/3 =1.233 =Antilog (1.233) =17.10 Index = (17.10/13.48)/10,000 = 12,685.45 (The index figure of the day) This index can be calculated by mathematically, i.e. When t=t0 A = 10.00 B = 15.00 C = 20.00 G.M = ( 10*15*20)1/3 =14.42 When t=t1 A = 12.00

B = 17.00 C = 25.00 G.M = (12*17*25) 1/3 = 17.21 Index = (17.21/14.42) * 10,000 = 11,934.812

ORGANIZATIONAL CHART

Managing Director

Dept of Companies Affair

Dept. of Internal control

General Manager

Secretary/ CAO.

Secretary

General Manager
Dept. of General Admin.

Dept. of Investor Relation

Executive Secretariat

Hierarchy Level:

There are different hierarchy levels in ISE. For officer the levels start from associate manager to M.D. and chairman of the exchange. The tier of hierarchy is following,

Chairman.

Managing Director.

Directors.

Secretary.

General Manager.

Senior Executive Secretary.

 Associate Managers.

Staff

Responsibilities:

The responsibilities of different positions are assessed on the bases of qualification, authority and experience.

Chairman:

The chairman is elected in the meeting of directors with subjects to limit for one year. In case of other person is not ready to elect as a chairman he will eligible to reelection. The chairman can hold this position for consecutive three years under this condition. For next time he will eligible after a year for election. The chairman hold office and observe that all function are going according will on the behalf of directors. The chairman is liable to perform the following main functions,

To observe the policies of management and whole functions of exchange for the better interest of members and directors.

To approval of any document which is sent by managing director (M.D.) without any objection.

If on any complex matter regarding to policymaking he understand that the meeting should call than he should call the meeting.

To preside all meeting of exchange.

Managing Director (M.D.):

The managing director is responsible for the whole function of exchange. He liable for the functions of staff to the Chairman. The board does the appointment of M.D. for the period of three years. The person who is elected as a M.D. is restricted to hold any other business or activity of trading in stock exchange. He is an independent person in exchange and full time paid employee of exchange. He is liable for following right and duties,

To sustain the routine matters regarding to exchange.

He can perform all functions for the betterment of management.

He can arrange the training of the staff according to requirement.

He can act for disciplinary actions for smooth functioning in trading of members.

He responsible to provide the information to director on demand from them.

He can give the summary regarding to policies of exchange in different matters.

He is responsible to maintain the accounts up to date and present in meeting on the behalf of

management.

Directors:

The director is elected in election trough the election. The board of directors has power to give the approval for any borrowing for the purpose of future growth of exchange.

The director has right to inspect the accounts of exchange at any time. The directors has following rights and liabilities, The directors in the meeting of the board can give approval of loan whether in the form of bonds, TFCs or any other security.

The can inspect the accounts of exchange at any time.

They can give their opinion regarding to any matter in board meeting.

Any resolution cannot be approve without the prior approval of directors.

They can give approval regarding to any investment for exchange in future.

Secretary:

The secretary is senior officer of stock exchange. He is head of secretariat and responsible to general management. He is also obligated for work, which is assigned to him from Chairman and Managing director. The main functions of secretary are,

He possess the common seal of exchange and responsible for it.

He has authority to verify the expenses before sending the minute sheet to Managing director

For annual general meeting he issues the notice to members.

On the instruction of chairman he is responsible to call the meeting board and to inform the members.

He can perform the functions regarding to director finance.

He responsible to attend the meeting the board of directors.

He arranges the training and rehabilitation.

He is responsible completion of any formality regarding to authorities e.g. SECP, Ministry of Finance.

General Manager:

The general manager is responsible for all functions for all matters regarding to different departments, which are working under him. He performs the following functions,

He provides the consultancy service to departments.

He performs the daily matters regarding to general management.

He is responsible for any function regarding to any department on behalf of associate manager of department.

He remained contact with SECP and other exchanges for information.

He can make any decision regarding to fine and delisting of any company with the consultation of Secretary and Managing director.

Senior Executive Secretary:

Senior executive secretary performs her part of duties for Chairman and Managing director. She perform the following main functions,

To note all telephone messages of Chairman and Managing director.

To handle all incoming and outgoing faxes.

Arrange hotel booking of chairman/ Managing director & Executives of ISE.

Arrange all appointments of Chairman and Managing director.

To check all mail of Chairman and Managing director.

Maintain all personal and official files of Chairman and Managing director.

Work as a telephone operator for chairman and Managing director.

Associate Manager:

Associate manager head of his department. He works according to instructions of general manager and secretary. The associate manager sent summary on different matter regarding his department to above management.

He is responsible for functions of his department.

He sent the report to Managing director with the advisory of general manager.

He is chargeable if any thing due or any regulation exist regarding to law related to his department.

CHAPTER-3.

ISLAMABAD STOCK EXCHANGE STRUCTURE

The main departments of Islamabad Stock exchange and their functions are given below in detail:

1. SECRETARIAT

Secretariat includes the following departments.

Record Room

General Administration

Finance Department

RECORD ROOM

This department keeps the record of all the listed companies. These records include annual reports, semiannual reports & public notices issued by the companies time to time. This department is also responsible for keeping the informations about the businesses of the companies, type of the company, dates of subscription of their shares, under/over subscription & prospectuses of new listed companies.

This department also dispatches the letters, reports & notices to the companies. It also keeps the record of all the I.S.E. members. It keeps a proper contact with L.S.E. & K.S.E. This department is a vast department having the records of 283 companies, their files & annual reports. Billing to this deptt. & to members is also handled by this department. All the cheques & letters of member of I.S.E. are received by this department & then delivered to the concern departments & members. This department is under the direct control of secretary of I.S.E. who is responsible for keeping all the records safe & update.

(b) GENERAL ADMINISTRATION

This department performs the general duties like arrangement of seminars, functions & sports tournaments etc. This department is also responsible for the maintenance & repair of the building of stock exchange. This department also performs the functions of personnel department. Recruitment & selection of lower grade employees is also done through this department. This department keeps an eye on internal environment of the Stock Exchange & also manages the communication system of the I.S.E.

(c) FINANCE DEPARETMENT

This department takes care of the activities like calculation and payment of salaries of ISE employees, receipt & recording of companies securities, maintenance of building, capital reserves & release of cash for payments and purchases.

2. Internal Control

The department of under internal performs the technical sensitive functions in Islamabad Stock Exchange (ISE). The main functions of department are,

Operate with risk management in ISE.

To deal members of ISE.

To supervise the information technology (IT) department and clearinghouse.

To deal with Market Monitoring and Surveillance Wing (MSW).

Send reports regarding to trading and related matters to Managing director and Secretary of exchange.

To give suggestions to SECP for impose penalty on the member in the case of violation.

The risk management is the important factor in the business of stock exchange. The department work under the supervision of Marketing Monitoring and Surveillance Wing (MSW) of SECP. The clearing house is a sub department of Internal Control department.

Operate with Risk Management:

The risk management is the important factor of ISE, different measure are adopted for such purpose in ISE. For efficient functions, a separate department is working in SECP, which monitor the functions continuously.

Deal with Members:

The department deals with the members and gives them instructions regarding to different matters relating to trade. If the member violate any rule regulation than the department recommend and impose penalty for such violence with the help of SECP.

Deal with Information Technology (IT) and Clearing House:

The information technology department and clearinghouse are sub departments of internal control. The departments send report regarding to routine matters to internal control. The department also performs some administrative functions for these departments.

Reporting Role:

The department is liable to send report to secretary and managing director. When a special case arises than the department sent special reports and consults them in affairs.

Market Monitoring and Surveillance Wing (MSW):

This wing was newly established, it is directly connected to ISE and monitors the risk functions. If any complexity in matter arises than the department informs and sent notices to members on the behalf of department of internal control.

Contract for web site:

The department contract for web site with companies with the help of IT department in ISE. The IT department provides the technical services for such purpose.

Control the system audit:

The system audit is control by department of internal control. This system newly introduced by ISE, under which the members are bound for audit from reputable charted accountant firm. After reporting from charted account firms a list is prepared for purpose of such audit regarding to members.. If the report is unclear or qualified than some time is given for re audit, despite the time giving if the members fail to re audit or for clearance such audit, the report is send to SECP. After the receiving the report from SECP, the action is taken against such member.

Scope of system audit:

To ensue that the members is following all the rules and regulations of the exchanges.

To ensure that there is a proper documentation and interaction between client and member,

To ensure that the member is operating trading workstation properly as required by exchange.

To ensure that the members properly paying the dues of exchange.

To check that in case of agents, the members are complying with regulation that relate to the registration by exchange.

To make sure that the books and record maintain properly,

To that the client marinating margin with exchange.

 To ensure that the member registered properly with SECP and renews its registration annually.

To ensure the maintenance by the member of proper record of transactions involving central Depositary company.

To ensure that the member prepare its annual financial statements and that these are audited by a practicing by a practicing Charted accountant where the member is a corporate one.

To ensure that the future contracts are according to regulation.

To ensure that the lots transactions are properly recorded.

3.Department of Investor Relations

Department of investor relations perform the following functions,

To provide all information with respect to members on requirements of investors.

To deal with the complaints of investors in stock exchange.

To meet all legal compliance in judiciary.

Maintain the newspapers.

Information to members:

The information is providing to investor on requirement regarding to member and brokerage house.

Complaints of Investors:

The complains are received from investors, after completing the procedure the documents are sent to the board of directors for purpose of final decision. If the board observes that the complaint is verified than the board made bound the member for recovery. In case of not following the case is referred to court for recovery.

Legal compliance:

The department of Investor relation is the representative of ISE in the court. It is also responsible to provide all record regarding to member on the demand of court. The department should work for investor welfare.

Maintain news:

The department is responsible to maintain the record of the newspapers, if the news is related to the important factors, which can affect the performance of stock market and related business.

4. DEPARTMENT OF COMPANY AFFAIRS

This department deals with all listed companies. The department has a direct & continuous contact with all the companies registrars & with Securities and Exchange Commission of Pakistan. The interested companies send their applications to this department. The department processes & analyzes the applications & then sees whether the company is eligible for listing i.e. whether the company fulfills the rules & regulations imposed by the Government & Securities and Exchange Commission of Pakistan. (These rules are given in chapter-6 of this report.)

This department lists the company & the shares of the company floats to the I.S.E. & the trading of the stocks start through I.S.E. members. This department keeps an eye on the company affairs whether they are going according to the rules & regulations of Stock exchange, whether the company issues public notices, right issues, bonus issues & whether they pay their listing fee regularly or not. This department also provides guidance to the companies in different legal interpretation. It also keeps a check on dividend that the companies pay to their stockholders.

CHAPTER-4.

WHAT I LEARNED?

I have learnt much more than I was expecting. I found this first experience very interesting & for this I am really grateful to my respected teacher & course coordinator Professor Ghulam Shabbir Niazi & Mr. Imtiaz Haider who arrange this internship program for me.

I worked in all of the seven departments of Islamabad Stock Exchange. The DAILY WORKING report of all the departments is given below:

Record Room:

I worked in Record Room for one week. I was involved in the daily activities of receiving the letters, notices, reports and other information send by the companies and members. I have been making daily entries of the above documents in the registers and updating the concern files.

I was also engaged in dispatching letters, notices and other documents to the L.S.E, K.S.E. & members. I was involved in sending letters and reports to the Securities and Exchange Commission of Pakistan.

Company Affairs: This department keeps an eye on the company affairs. This department deals with companies & all the companies information come to this department through Record Room. This department sees whether all the companies declare dividends, issue right shares and bonus shares or not. If a company doesnt do well there is department inform the SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN.

Here I was given an assignment to compile the rules & regulations of the Islamabad Stock Exchange & prepare a report on these rules. I have added to this report.

Finance Department:

I worked in finance department for one week. Here I was engage in calculation of salaries, receipts & recording of companies securities. I was also involved in releasing of cash for payment of salaries, purchases & maintenance of building.

Internal Control:

This department keeps the daily record of the shares & securities. Here I have been making daily entries of transaction in the computer system. Here records are stored in computer but manual record is also kept. The package under use here is the Brokerage House packages called SOLACE.

I worked in this department for one week & learned much more about computers software like Microsoft Window-98& Microsoft Word-97.

Brokerage House

This department is the place where sales & purchases are being carried on. Before Computerized Trading System there was voice trading in the Trading Hall. But now the I.S.E. management has installed the new CT System. Every member/broker has certain scripts to purchase and some of them to sell. The bidding is done through computers. The rate and quantity of shares on which the buyer and seller both agrees, is registered with Stock Exchange.

In this current period the activities of Brokerage House are affected by the budget announcement, Strikes, political instability in Karachi & other Socio-economic factors.

CHAPTER # 5

CENTRAL DEPOSITORY SYSTEM

Central Depository System is an Electronic Book Entry System to record and maintain securities and to register the transfer of securities. In Central Depository System, ownership is changed without physical movements of securities or execution of transfer deeds. The ownership is transferred as soon as securities move from one account to another. It is purely a settlement vehicle and does not effect the trading in any manner whatsoever.

There are three element of Central Depository System

Account Holder

Issues / Registrars

Eligible Pledges

ACCOUNT HOLDERS

Account Holders are divided into two categories; Account Holders and Participants. Both, Account Holders and Participants have direct access to the CDS. Account Holder are allowed to have a Main Account and a House Account for theyre beneficially owned securities. Participants, however, are entitled to have cline accounting facilities within the CDS and are able to provide custody services. In addition to Main Account and House Account, Participants are allowed to have sub-accounts and a Group Client Account. In short, Participants can provide Custody Services to their clients whereas; Account Holders can keep only their beneficially owned securities in CDS.

All the members of Stock Exchanges, Bank (Both Commercial and Investment), and DFIs can open their accounts as Participants whereas; Corporate Bodies and Qualified Private Investors can open their account as Account Holders.

ISSUES / REGISTRARS

The companies or issuers of capital whose securities are converted from physical to electronic book entry system play a significant role in Central Depository System. The issuers of capital also have direct access to the CDS. Once a security is declared eligible for the purpose of Central Depository System, necessary software and CDS connection is provided to that particular issuer upon signing the Issuers Agreement with CDS.

The shares are entered into CDS only after proper verification by these issuers. This process eliminates the problem of fake certificates as shares are thoroughly checked by the issuers before approval for CDS.

ELIGIBLE PLEDGEES

Financial institutions that lend against securities can open their account in the capacity of Eligible Pledges. These institutions also have direct access to CDS and are provided with necessary connection in this regard upon signing the Pledges Agreement with CDS. The borrowers can then mark lien on their electronic book based securities in favor of the pledges bank on CDS. Once the beneficial owner of that security marks a lien on a security, only the institution is whose favor the line is marked can either call the security in any specified account in CDS or release the securities back to the beneficial owner of that particular security. In short, once a lien is marked, the control moves to the pledges bank and the beneficial owner is not able to do anything with those securities. These securities are frozen in their account. CDS ACCOUNT STRUCTURE

The Account Holders are able to settle their transactions with the CDS through five types of accounts, namely;

Main Account Each Account Holder in the System is allocated a main account by virtue of being an Account Holder / Participant in the CDS. This account is mainly used as a transit account for movement of securities.

House Account: Used for securities owned beneficially by account Holders/ Participants.

Sub-Account (Client Account): This account is used by Participants for keeping securities beneficially owned by their clients. Participants may open / maintain any number of sub-accounts on behalf of their clients.

Group Client Account: This account is used for keeping securities beneficially owned by those clients of a participant who are not willing to use the facility of opening separate sub-accounts. Each group account contains securities owned by a group of clients. The participants in their back office maintain the detailed break-up of the securities held by each client of such a group.

Cash Account: Account Holders will be able to move cash among each other through this account (this facility will be provided in future). CDS OPERATIONS

The operations performed in the CDS are as follows:

Deposits of existing and new securities into the Central Depository System. All the physical securities are deposited in the CDS after which they are available for further transfer within the system.

The Account Holder initiates the Deposit Request by entering the details of share certificates into the system, and Securities Deposit Form.

CDS generates computer printouts of the transaction.

Transfer Deed is executed in the favor of Central Depository Company of Pakistan Limited.

Account Holder then sends the relevant share certificates, transfer deeds, securities Deposit Form and the computer printouts to the relevant registrar.

The issuer / registrar after verification either approves or rejects the transaction within five days from the receipt of the documents. Issuer / registrar updates CDS nominee share holding in the members register.

Issuer / registrar cancels share certificates / transfer deeds and returns the relevant documents to applicant account holder.

Withdrawal of securities in the form of physical certificates from the Central Depository System. Those investors who prefer to have physical possession of certificates can do so through this facility.

The Account Holder initiates the Withdrawal Request by entering the relevant details into the system, and Securities Withdrawal Form.

CDS generates computer printouts of the transaction.

Account holder then seeds the Securities Withdrawal Form and the computer printouts to the relevant issuer / registrar.

The issuer / registrar after verification of the balance either approves or rejects the transaction within ten days from the receipt of the documents. Issuer / registrar updates CDS nominee share holding in the Members Register.

Issuer / registrar prepares share certificate (Jumbo certificate) and returns the relevant documents and share certificates to the applicant. Free Transfer Book entry transfer of securities without any associated cash movement. This is a unilateral transaction in which account holders / participants deliver securities to other account holder / participants in Central Depository System. Although the beneficial owner of securities changes as securities move from one account to another, there is no stamp duty involved and the transfer is instantaneous. Pledge / Release / Call Placing a lien on securities in favor of a lender, which can only be released / called by the lender. This function greatly benefits the financial institutions as they can reduce risk of fake share certificates and paperwork to a great extent. Corporate Action CDS provides relevant details of account holders and sub-account holders for various corporate actions, which include:

Notice of General Meetings

Other Notice / Communication

Book closure for:

General Meetings Attendance

Issue of Bonus Shares

Divided Declaration

Other entitlements such as Rights etc. Delivery versus payment Book entry transfer of ownership of a security in exchange for payment to settle a transaction (this facility will be provided in future).

Cash only Movement Movement of cash from one account to another with out any associated securities movement (this facility will be provided in future).

DIFFERENCE BETWEEN SETTLEMENT AND TRADING

Trading is the selling and buying of securities through a stock broker, whereas settlement is the delivery of the securities bought and sold. The Central Depository System only settle securities electronically. In other words, you would continue to trade through a broker but the delivery of securities will be made through the Central Depository System.

WHY WAS CDS NEEDED?

The following problems prevailed in the old system:

Lengthy delays in the delivery, settlement and transfer of securities.

Tedious procedure of verification of securities and transfer deeds.

Considerable time involved in dispatching and issuing cash divided and bonus securities.

Risk of damaged, lost, forged and duplicate securities.

Serious problems associated with physical custody.

Tedious procedure involved in pledging of physical securities.

Central Depository System, by converting physical securities into electronic securities, has eliminated the risks of damaged, lost, forged, and duplicate securities. The instantaneous delivery through electronic book entry has resulted in immediate transfer of ownership, which previously took almost 45 days. CDS has also reduced the cost of investors significantly.

Chapter # 6

INTRODUCTION To Brokerage House: Zahid Latif Khan Securities (Private) Limited ("zlksec") is a leading brokerage house in Islamabad Stock Exchange (ISE). Established in 1999, M/S Zahid Latif Khan Securities (Private) Limited has become a renowned brokerage house of the ISE with an expanding network of braches in Rawalpindi and Islamabad. The company is the corporate member of ISE.

MISSION STATEMENT:

Our prime mission is the maximization of our clients' profit through efficient portfolio management and in depth equity research. We aim:

To provide services of the highest standard to clients through professional services, diligence, reliability and high operational efficiency.

To provide best possible market research, daily market reports and technical analysis to our clients for timely decision making.

ZLK SERVICES:

It is only through high quality services that they have earned an envious reputation among the investors. Highlights of their area of expertise are given here under:

Specialize in share trading both at Islamabad and Karachi Stock Exchanges simultaneously through our network of branches in Islamabad/Rawalpindi cities.

Offer services at the most competitive prices, which has been a prime factor for expanding customer base and greater customer retention.

Offer online trading through our dedicated local area network (LAN) linked with Islamabad Stock Exchange (ISE).

Provide access to KSE markets and real time KSE rates through agents placed at Karachi.

Maintain a large number of online terminal displays connected with Internet and PTV teletext for the information of customers.

Facilitate customers to track their portfolios through computerized back office operations covering order execution, clearings and settlement operations.

Provide daily and weekly account position to clients and also offer share transfers through Central Depository Company (CDC) System.

Provide free of charge technical /fundamental analysis to customers through the expert team for the benefits of their clients.

They have extended outreach to international investors through the Internet. For this purpose, they maintain a comprehensive web site at www.zlksec.com

They offer trading in futures market.

COMPLIANCE WITH REGULATIONS:

As a corporate member of the Islamabad Stock Exchange, we place greater emphasis on rigid regulatory compliance covering the securities operations of our company. Moreover, with our focus on safeguarding the interests of the investors, we have instituted independent policies to stay ahead in the implementation of effective transparent and disclosure policies in all areas of our business

MANAGEMENT:

Mr. Zahid Latif Khan, the Chief Executive and Chairman of M/S Zahid Latif Khan Securities (Private) Limited, has been associated with the stock markets of Pakistan since 1990. During 1994, he established a business office at Rawalpindi dealing with stocks and shares in collaboration with a reputed Karachi based brokerage house. After nearly a decade of stock market experience and wide ranging exposure with the securities market, Mr. Zahid became a full fledged member of the Islamabad Stock Exchange during 1999 when he established a corporate brokerage house with the name of M/S Zahid Latif Khan Securities (Private) Limited. Recently, Mr. Zahid has also acquired a membership of National Commodity Exchange Limited under his own name. He complements his stock market experience with participation in many seminars and

qualified courses in stock market operations and skills, and is an expert on the National Clearing Settlement System of Pakistan. Mr. Zahid also has vast experience in banking, insurance and money market management. Besides being a dynamic stockbroker, Mr. Zahid has diversified business interests in the field of computer and pharmaceutical trading. Other than looking after the demands of his expanding business, Mr. Zahid is also active in business leadership roles. He has the honor of serving on the Board of Directors of the Islamabad Stock Exchange during 2001, of which he is also a director for the current year. Additionally, Mr. Zahid is also an active member of the Rawalpindi Chamber of Commerce & Industries

TEAM:

Their team consists of highly professional, experienced and well trained staff with broad ranging qualifications. Each member of their team is made to comply with the highest code of ethics and conduct thereby contributing to a unique corporate culture of responsibility and accountability in their organization. M/S ZLK securities has following managerial staff at various braches: Mr. Syed Zafar Abbas Manager Corporate Branch Mr. Muhammad Atif Khan Manager Rawalpindi Cantt. Branch Mr. Adnan Amin Manager City Branch

CHAPTER-7

Findings

The positive and negative aspects of Stock Exchange according to my point view are:

Positive Aspects:

The positive aspects of Stock Exchange are :

Net capital balance requirement redefined and enhanced 10 times

Capital Adequacy introduced -- exposure of brokers not to exceed 25 times net capital balance

Introduction of T+3 system

Margin requirements strengthened

BODs of Stock Exchanges restructured to include 50% independent directors

Independent, professional Managing Directors appointed and removed with SECP approval

Size of BOD reduced from 18 to 10 members. Chairman to be appointed by the BOD

Negative Aspects:

The negative aspects of stock exchange according to my point of view are

w Require improve risk management at the exchanges

w Develop a regulatory framework for online trading

w There is need for demutualization of stock exchanges

w There is need for further strengthen audit practices and enforce International Accounting Standards

FUTURE PROSPECTS

Islamabad Stock Exchange is committed to becoming a world class Stock Exchange with unique investment opportunities for local as well as foreign investors in a fast developing market. Unfortunately the unstable political situation & the law & order problem are the main hurdles but the management is optimistic that the Stock Market would grow and the number of companies listed at ISE would increase and reach a reasonable figure with in a short span of time.

The management of ISE bent upon improving the existing trade and settlement infrastructure, information system, skilled resources, accessibility and a fair and orderly market place that would rank with the best exchanges in the emerging capital markets.

The management plan to offer wide range of diverse and exclusive quality stocks coupled with a growing number of market instruments making ISE more attractive for both domestic and foreign investors.

The Securities and Exchange Commission of Pakistan desires that ISE should also provide international transaction facilities. In order to attract foreign investors towards a stock exchange, the following facilities should be made in a city where foreign trade is expected to be made:

Substantial market liquidity whereby the foreign investors can buy and sell share in large blocks.

Availability of institutional investors who can be approached by brokerage houses for large deals.

Existence of a number of corporate brokerage houses to choose from for execution of the orders.

Availability of liaison office or agent office of the foreign investor.

RECOMENDATIONS

Although ISE is adequately equipped with facilities required for foreign investors yet a couple of facilities mentioned above are required to make available for them. The following measures, if taken, can help attract the attention of foreign investors to the Islamabad Stock Exchange.

NIT, ICP and State Life may route some of their trade through ISE which would help the inventory building process.

In case KSE is closed due to strike or any other reason, ISE should function and NIT, ICP and State Life may divert their orders to ISE. For this purpose, these institutions may upgrade their local offices. Foreign investors may be tempted to trade at ISE on such days.

ISE may ask its inactive Corporate Members to activate themselves and target foreign investors for business.

CHAPTER-8

IMPORTANT TERMS Bear an investor who anticipates a falling market and, therefore, sells the security in the hope of buying it back at a lower price. Blue Chip A large well-established company with a history of profitable operation. Bonds Fixed-income securities, which entitle the holder to a pre-determined return during their life and repayment of principal at maturity. Bull An investor who anticipates a rising market and, therefore, buys the security in the hope of selling it later at a higher price. Capital Gains Tax Tax payable on profit arising from appreciation in value of investment, realized at the time of selling or maturity of investment. Carry-over Trades Equity repurchase transactions, better known, as Badla; these are an established form of transactions used in the stock market for temporary financing of trades by speculators and jobbers. Dividend That part of a companys profits which is distributed among shareholders, usually expressed in rupee per share or percentage to paid up capital. Earnings per share (EPS) A profitability indicator calculated by dividing the earnings available to common stockholders during a period by the average number of shares actually outstanding at the end of that period. Equity The owners interest in a companys capital, usually referred to by ordinary shares. Floatation The occasion when a companys shares are offered on the stock market for the first time. Fund managers A company, which invests and manages investors money, with the aim of maximizing capital growth. Initial Public Offering (IPO) The offering of equity shares of a company to the general public for the first time. Insider trading The purchase or sale of shares by someone who possesses inside information on a companys performance which information has not been made available to the market and which might affect the share price. In Pakistan, such deals are a criminal offence. Investment companies A company, which issues shares and uses its capital to buy securities and shares in other companies. Listed company A company whose securities are admitted for listing on a stock exchange. Long position - When an individual purchases securities of a company he is said to have a long position in the companys shares. For example an owner of shares in PTCL is said to be "long PTCL" or "has a long position in PTCL." If you are long, you would like the share price to go up. Market capitalization The total value of a companys equity capital at the current market price. Nominee A person or company holding securities on behalf of others, but who is not the owner of such securities.

Option The right (but not the obligation) to buy or sell securities at a fixed price within a specified period. Ordinary shares The most common form of shares, which entitle the owners to jointly own the company. Holders may receive dividends depending on profitability of the company and recommendation of directors. Portfolio A collection of investments Price/earning ratio (P/E ratio) The P/E ratio is a measure of the level of confidence (rightly or wrongly) investors has in a company. It is calculated by dividing the current share price by the last published earnings per share. Primary market Where a company issues new shares, either for the first time, or at the time of issuing additional securities. Privatization Conversion of a state-owned company to a public limited company (plc) status. Private company A company that is not a public company and which is not allowed to offer its shares to the general public. Public limited company (plc) A company whose shares are offered to the general public and traded freely on the open market and whose share capital is not less than a statutory minimum. Rights Issue The issue of additional shares to existing shareholders when companies want to raise more capital. Securities A broad term for shares, corporate bonds or any other form of paper investment in capital market instruments. Settlement Once a deal has been made, the settlement process transfers stock from seller to buyer and arranges the corresponding exchange of money between buyer and seller.

Short Selling- The act of borrowing stock to sell with the expectation of price reduction with the intention of buying it back at a cheaper price. Stockbroker A member of the stock exchange who deals in shares for clients and advises on investment decisions. Stock Market The market place where shares of publicly listed companies are bought and sold. Unit trust An open-ended mutual fund that invests funds in securities and issues units for sale to the public. It can repurchase these units at any time. Yield The aggregate return earned on an investment taking into account the dividend/interest income and its present capital value.

BIBLOGRAPHY

1. The first important thing is the discussions with the employees of Stock Exchange.

2. Reading the annual report of ISE.

3. Surfing the website (www.ise.com.pk)

4. Getting information from CDC.

5. Discussions with the employees of ZKL.