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Integration of stock markets to spur growth and investment

Published on 25th Jan, Edition 04- 2016

 

Finance Minister Ishaq Dar officially announced the merger of the stock markets of Karachi, Lahore and Islamabad into one entity the Pakistan Stock Exchange (PSX) on January 11, 2016. The PSX will operate from the Karachi Stock Exchange under the new set-up. The Lahore Stock Exchange has been converted into LSE Financial Services Limited with a licence of an NBFI and Islamabad Stock Exchange into the ISE REIT Management Company.
Brokers of ISE and LSE have been absorbed along with members of the KSE as certificate holders of the PSX. The decision to establish PSX was taken at an extraordinary general body meeting held by members of the different exchanges.
At present, there are 555 companies listed on these exchanges with a total market capitalization of US$67 billion as of December 23, 2015. The investors on the exchanges include 1,886 foreign institutional investors and 883 domestic institutional investors along with about 0.22 million retail investors.
There are also about 400 brokerage houses which are members of the three stock exchanges as well as 21 asset management companies. As an amalgamation of all these invaluable attributes, the PSX represents a quantum leap forward for the country’s capital market.
This inauguration of the Pakistan Stock Exchange is primarily the second phase of Stock Exchanges Demutualization and Integration Act 2012, which was passed by the legislative body in a joint session and is now completed.
The unification of the three stock exchanges was possible through the collective efforts of numerous stakeholders. The perception of the Government of Pakistan and the Finance Minister was adopted by the Securities and Exchange Commission of Pakistan (SECP), apex regulator of the country.
The Central Depository Company of Pakistan and the National Clearing Company of Pakistan also played an important role in this process. The commercial, regulatory and IT teams of the stock exchanges have been working without interruption in close coordination with the SECP to ensure a smooth transition to single national trading platform for equity and debt securities.
Finance Minister Ishaq Dar appreciated Securities and Exchange Commission of Pakistan (SECP) and guaranteed full hold up for the government to accomplish divestment of shares of community division projects to get the full reimbursement of the establishment of Pakistan stock exchange.

GLOBAL STOCK INDICES DURING JULY-APRIL 2014-15
Sr.noCountryStock nameDateChange July –April 2014-15
1-Jul-1430-Apr-15Points%
1PakistanKSE-10029,653.0033,730.004,077.013.7
2USS & P 5001,960.232,085.51125.36.4
3IndiaSensex25,413.7827,011.311,597.56.3
4AustraliaAORD5,382.005,635.00253.04.7
5New ZealandNZX 505,141.485,791.34649.912.6
6UKFTSE 1006,743.906,960.60216.73.2
7TaiwanT.weighted9,393.079,820.05427.04.5
8Hong KongHang Seng23,190.7228,133.004,942.321.3
9Kuala LumpurKLSE Composite1,882.711,818.27-64.4-3.4
10TokyoNikkei 22515,162.1019,520.014,357.928.7
11SingaporeFSSTI index3,255.673,487.39231.77.1
12ChinaShanghai Composite2,048.004,442.002,394.0116.9
13SeoulComposite2,002.212,127.17125.06.2
14ThailandSet (Bangkok)1,486.001,527.0041.02.8
15PhilippinesPCOMP index6,844.007,715.00871.012.7
16Sri LankaCSEALL index6,378.627,179.00800.412.5
17IndonesiaJCI index4,878.585,086.42207.84.3

Pakistan has a bright future ahead and all issues can be resolved with honesty and sincerity. The Finance Minister said the government has prepared a roadmap for reviving Pakistan’s economy and is working in all sectors of the economy. Round 22 international institutions have recognized the Pakistani economy as a stable macro economy. He said the economy was facing a very dangerous situation in 2012-13 but due to the efforts of the government the international rating of Pakistan’s economy has turned positive. Regarding the ongoing energy crisis in the country, Ishaq Dar claimed that around 10,000MW of electricity would be added to the national grid by March 2018.

 

Future pledge

The advantages of a substantial event should be the foreign direct investment in Pakistan, which will ameliorate the richness of this country. In order to achieve this, competitive and emerging capital, market should be presented to the world which will give the impression that investing in Pakistan is not a bad alternative, so in all cases in both national and international financial markets of Pakistan should be vigorous.
It is anticipated that the management of newly-formed PSX would concentrate on good transactions, governance and transparency and this would help further improve the country’s capital market performance. It is a matter of greatest satisfaction that the country’s economic professional are trying to improve the role of the capital market in order to improve the level of investment and accelerate development of the economy.
On the negative side the integration of stock exchanges would not make much difference to the investment decisions of either the savers or the users of capital because they were getting almost the same facilities even before the merger of capital markets.
This merger will give away a positive responsiveness on the subject of the financial system of Pakistan. The downfall in the economy needs to be covered up. For this reason, PSX is a means of hope for the betterment of the financial system of Pakistan.
The emergence of a single, national capital market will create a large liquidity pool through which scores of brokers shall be able to better serve existing and prospective investors throughout the country.
Internet trading platform
The concurrent provision of the Exchange’s new Internet Trading Platform named KITS will enable brokerage houses to provide their clients with real-time services without the need for large IT infrastructure. This shall enable the rise of small and medium-sized brokers that are highly focused on core business functions such as client acquisition and equity sales.
The merger of three stock exchanges into a proposed Pakistan Stock Exchange (PSE) would bring about revolutionary change and improve economic activity in Pakistani capital market. Japan and Malaysia had also expressed interest in management of proposed Pakistan Stock Exchange.
Participation of many brokers in one single platform will enhance liquidity. The emergence of a single, national capital market will create a large liquidity pool through which scores of brokers shall be able to better serve existing and prospective investors throughout the country.
In the opinion of the SECP, the integration complies with the international and regional trend, and consolidation will bolster the financial health of the stock exchange. Investors’ protection fund too will be enlarged, boosting their confidence.
Public limited company
The integrated Pakistan Stock Exchange is now a public limited company, with 40 percent of its shares available for sale to strategic partners, and 20 percent are supposed to be offered to the public within one year. It will be a fast race for the Pakistan Stock Exchange.
The Istanbul stock exchange has a clear eye on Pakistan, as it wants to own a part of one exchange among many, and integration of the bourses was one of their conditions as well. The SECP chair has explicitly stated that directors of the national bourse must be knowledgably independent and in true sense working for the investors.

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