brokerage industry november15 · institutional (corporates and financial instiutions) retail....

Brokerage Industry

November 2015

Capital Market Institutes

Concept of Brokerage

Regulatory Framework

Capital Market Analysis

Upcoming Developments

Capital Market Institutions

1) Karachi Stock Exchange – established in 1947 (The Premier Stock Exchange with over 650 listed companies)

2) Lahore Stock Exchange – established in 1970 3) Islamabad Stock Exchange – established in 1989 4) Pakistan Mercantile Exchange Ltd – In operations since 2007:

Provides Futures contracts in commodities

Capital Markets Institutes






Securities and Exchange Commission of Pakistan Limited (SECP) Stock Exchanges Central Depository Company of Pakistan Limited (CDC) Established in 1997: Operates a book entry system to record and transfer securities in electronic form. The three stock exchanges are linked to Central Depository System (CDS). ~97% trades settled by the stock exchange are now handled through the CDS. National Clearing Company of Pakistan Ltd (NCCPL)

Established in 2001: Provides clearing and settlement services by acting as a central and geographically neutral clearinghouse for all the three Exchanges for book entry of securities.

Capital Markets Institutes





Requirements for Brokers

Member of an Exchange (TREC holder of at least one stock exchange) Participant in CDC Clearing Member in NCCPL Registered with SECP as Broker Trading Terminal Margin and Exposures


Brokerage Industry




Broker Activities

Brokerage activities: Brokerage *

Equity Brokerage (Listed and Unlisted Securities), Fixed Income Brokerage, Commodity Brokerage

Corporate Finance Financial Advisory Treasury Operations (Fixed Income & Money Market) Research Underwriting Leverage products

(Margin Financing, Margin Trading, Securities Lending and Borrowing)

Brokerage clients classification: Foreign Institutional (Corporates and Financial Instiutions) Retail.

*0.25% of market price of security or 5 paisa / share whichever is greater. Commission varies w.r.t slabs of scrips. Higher value scrips has higher commission


Brokerage Industry




Industry Players - Number of Brokerage Firms

• 12 Listed Firms •Currently all registered brokers are corporate entities


Brokerage Industry




Trading Options – Brokerage Revenue streams in Equity Market

1) Ready Market: All listed companies shares traded during regular market time. Regular market works on T+2 settlement system.

2) Futures Market: Involves purchase and sale of securities at some future date (normally within one calendar month), at a price fixed today.

3) Margin Trading System: Purchase of securities in ready market by equity participation.

4) Margin Financing: Financing against net ready market purchases and may be obtained as per agreed Financier Participation Ratio.

5) Securities Lending & Borrowing (SLB): Temporary exchange of securities with an obligation to re-deliver the same securities in the same number and at an agreed premium on a future date.


Brokerage Industry




Leveraged Products

Margin Financing (MF) MF facility is made available to all brokers against net ready market purchases of their clients and proprietary positions. Financier Participation Ratio (commonly 75%). However, minimum of 25% or VaR whichever is higher should be contributed by financee. Maximum mark-up rate in MTS Market is KIBOR+8%. Eligible Financees: All Broker Clearing Members. Eligible Financiers: A member of a Stock Exchange; a banking company; and a company, corporation or institution. No MtM losses procedure. No roll over. Contract days 120 days.

Capital Market Institutes Brokerage Industry Regulatory Framework Capital Market Analysis Upcoming

Developments

Securities Lending & Borrowing (SLB) May be utilized by the borrowers to avoid delivery failure in ready market or to make a short sale. SLB is done through an automated platform provided by NCCPL to lenders and borrowers for placing offers and bids on un-disclosed manner. Eligible Participants: A member of a Stock Exchange; a banking company; and a company, corporation or institution. Max Premium of SLB KIBOR+8%. Contract period is maximum for 22 working days. On Settlement Day, the lender delivers the securities lent and borrower pays the total amount of borrowed securities.

Margin Trading System (MTS) Maximum mark-up rate in MTS Market is KIBOR+8% Equity participation: Financee (15%); Financier (85%). Eligible Financees: All Broker Clearing Members. Eligible Financiers: A member of a Stock Exchange; a banking company; and a company, corporation or institution. Marked-to-Market (MtM) losses on daily basis in Cash only till the settlement of the entire MT Contract. MT Contract not exceed from 60 calendar days. Every 15th calendar day, MTS will automatically release one 4th quantity of the MT Contract Value. Rollover is allowed in MTS.

Order / Transaction Types

1) Market Order: Only order quantity is sent and trade is executed at the market price.

2) Limit Order: Limit price and order quantity are sent by the investor and trade is executed by the exchange when the market price reaches the price specified.

3) Stop Loss Order: A request to sell a security once the market price reaches or falls below a customer-specific price. Once the target price has been reached or surpassed, the order becomes a “market” order. Stop-loss orders are only available when selling a security to close a position.

4) Short sell: Selling securities owned by the seller in anticipation of repurchasing them at a lower price.


Brokerage Industry




Equity Market –Analysis


Brokerage Industry




Equity Market - Analysis

29%

13%

30%

37%

25%

35% 36% 36%

7%3%

8%9%

6%9% 9% 9%

22% 23%25% 24% 25%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2007 2008 2009 2010 2011 2012 2013 2014

FPI as % of Free Float FPI % of Mkt Cap Total Mkt Cap of securities in IAS (in mln) % of Total Mkt Cap


Brokerage Industry




Foreign & Local Trading Activity in Stock Market

Gross Buy Gross Sell Gross Buy Gross Sell

USD in mln USD in mln

Banks 160,055 (173,843) (13,788) (138) 787,600 (793,578) (5,978) (58)Companies 828,131 (837,850) (9,720) (97) 153,630 (144,826) 8,804 85 Mutual Funds 188,721 (176,510) 12,211 122 139,516 (154,957) (15,441) (154)NBFCs 37,605 (30,787) 6,819 68 29,753 (28,043) 1,744 18 Individuals 1,913,812 (1,916,262) (2,450) (24) 1,536,063 (1,538,797) (2,734) (26)Other Organizations 61,419 (57,334) 4,086 41 30,097 (42,722) (12,624) (122)Total 3,189,743 (3,192,586) (2,843) (28) 2,676,659 (2,702,923) (26,229) (257)

Broker Proprietary 109,627 (110,770) (1,143) (11) na na na na Total including prop book 3,299,369 (3,303,355) (3,986) (40) 2,676,659 (2,702,923) (26,229) (257)

Total FIPI 275,838 (271,984) 3,854 39 214,967 (188,785) 26,181 (58)

TOTAL (Local + FIPI) 3,575,207 (3,575,339) (132) (1) 2,891,626 (2,891,709) (48) (315)

Net Buy/(Sell) Net Buy/(Sell)

PKR in mln PKR in mln

Share Trading Business (Value) | FY15 Share Trading Business (Value) | FY14

Trading activities of Local Investors from July 01, 2014 to June 30, 2015



Brokerage Industry




Foreign & Local Trading Activity in Stock Market

Gross Buy Gross Sell Gross Buy Gross Sell

USD in mln USD in mln

Banks 5% 5% (13,788) 484.95% 29% 29% (5,978) 23%Companies 25% 25% (9,720) 341.86% 6% 5% 8,804 -34%Mutual Funds 6% 5% 12,211 -429.47% 5% 6% (15,441) 59%NBFCs 1% 1% 6,819 -239.82% 1% 1% 1,710 -7%Individuals 58% 58% (2,450) 86.17% 57% 57% (2,734) 10%Other Organizations 2% 2% 4,086 -143.70% 1% 2% (12,624) 48%Total 97% 97% (2,843) 100% 100% 100% (26,264) 100%

FIPI % of Total 8% 8% -2920% -2920% 7% 7% -54467% 18%Local % of Total 92% 92% 3020% 3020% 93% 93% 54567% 82%

PKR in mln PKR in mln


Trading activities of Companies from July 01, 2013 to June 30, 2014

Net Buy/(Sell) Net Buy/(Sell)


Brokerage Industry




Equity Market - Indexes Analysis


Brokerage Industry




Equity Market – Turnover Analysis

1QFY15 2QFY15 3QFY15 4QFY15Free Float (KSE) 48,419,061 47,454,408 48,508,217 49,260,704Average Daily Volume 100,375 202,910 260,782 347,150 Turnaround Days 482 234 186 142


Brokerage Industry




Equity Market – Active UINs

-

100,000

200,000

300,000

400,000

500,000

600,000

90%

91%

92%

93%

94%

95%

96%

97%

98%

99%

100%

101%

Dec'08 Dec'09 Mar'10 Dec'11 Dec'12 Dec'13 Dec'14 Feb'15

Act

ive

UIN

s (in

num

bers

)

Inve

stor

Mix

(in

%) o

f Tot

al A

ctiv

e U

INs

Corporate Company

Foreign Individual

Fund / Others

Corporate / Individual Broker

Individual

Total


Brokerage Industry




Equity Market – Investor Account Services (IAS)

33% 31% 33% 33% 31%

67% 69%67%

67% 69%591,083 748,043 882,300

1,222,700

1,775,650

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

2010 2011 2012 2013 2014

Tot

al M

kt C

ap o

f Sec

uriti

es i

n IA

S (in

mln

)

Inve

stor

Mix

(%)

in I

AS

Corporate Individual Total Mkt Cap of securities in IAS (in mln)


Brokerage Industry




Equity Market – Leveraged Products During 2008 – 2009 Crisis

95 349 217

20,279 17,531

15,167 11,525 11,034

1,920 404 651 1,671 413 105

(1) 4 1

247 268

249

191 182

28 13 18

33 7 1

-

5,000

10,000

15,000

20,000

25,000

(50)

-

50

100

150

200

250

300

Val

ue (i

n m

ln)

Vol

ume

(in m

ln)

CF MK-II Net Value (in mln) CF MK-II Net Volume (in mln)


Brokerage Industry




Equity Market – Leveraged Products Post 2008 Crisis

524

2,017

2,743

3,403

148

104728

41

70

76

11

56

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

-

10

20

30

40

50

60

70

80

90

2011 2012 2013 2014

Value

(in m

ln)

Volum

e (in

mln)

Leveraged Products - MTS & MF (Post 2008)

MTS Value (in mln) MF Value (in mln)

MTS Volume (in mln) MF Volume (in mln)


Brokerage Industry




Commodity Market – PMEX

-20,000,000 40,000,000 60,000,000 80,000,000

100,000,000 120,000,000 140,000,000 160,000,000 180,000,000

FY09 FY10 FY11 FY12 FY13 FY14 FY15

PMEX - Trading Volume


Brokerage Industry





Formation of Pakistan Stock Exchange (PSE) Completion of Demutualization New Broker Registration Regime


Brokerage Industry




DISCLAIMER PACRA has used due care in preparation of this document. Our information has been obtained from sources we consider to be reliable but its accuracy or completeness is not guaranteed. The information in this document may be copied or otherwise reproduced, in whole or in part, provided the source is duly acknowledged. The presentation should not be relied upon as professional advice.

Analysts

Rai Umar Zafar Manager Ratings +92 42 3586 9504 [email protected]

Shoaib Afzal Financial Analyst +92 42 3586 9504 [email protected]

Usama Liaquat Financial Analyst +92 42 3586 9504 [email protected]

brokerage industry november15 · institutional (corporates and financial instiutions) retail....

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