Stock ExchangesMuhammad Ramzan Mehar

Muham

mad Ram

zan Mehar

2Market

A public place where buyers and sellers make transactions, directly or via intermediaries. Also sometimes means the stock market.

A market is a public place where provision and object are exposed for sale.

Muham

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3Types of Market

There are two types of Market as following :

Money Market

Capital Market Primary Market Secondary Market

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4 Money Market:- In finance, the money market is the global financial market for

short-term borrowing and lending. It provides short-term liquidity funding for the global financial system. The money market is where short-term obligations such as Treasury bills, commercial paper and bankers‘ acceptances are bought and sold.

Capital Market -- The market for relatively long-term (greater than one year original maturity) financial instruments.

Types- - Shares, Bonds/TFCsTypes of Capital MarketsPrimary Market -- A market where shares or TFCs are

bought and sold for the first time (a “new issues” market).

Secondary Market- “Secondary markets are those where already issued shares are bought and sold”

Muham

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5What is Stock Exchange? A stock market or equity market is a public entity

for the trading of company stock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.

A stock exchange is… An organized marketplace used for trading. Where brokers and dealers buy and sell stocks of publicly traded companies on investor’s behalf.

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6History The first Stock Exchange (S.E) came to operation in

Scandinavian countries, followed by European countries.

Later on London became the leader because of the British Empire.

THE BIGGEST STOCK EXCHANGE: The Wall Street in New York, USA is the biggest S.E of the world, was established in 1792.

HISTORY IN SUBCONTINENT: East India Company started this business in India.

The leading S.E in India was established in 1850. Eight S.Es in India, 2 each in Bombay, Calcutta and

Ahmedabad and 1 each in Madras and Lahore.

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7History count… A look at history First Official Stock Exchange

Amsterdam Stock Exchange Oldest Stock Exchange in Asia.

Bombay Stock Exchange Limited Oldest Stock Exchange in India.

Karachi Stock Exchange in Pakistan. 

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8Major Stock Exchanges:

New York Stock Exchange (NYSE- USA) Toronto Stock Exchange (Canada) Amsterdam Stock Exchange London Exchange Singapore Exchange Tokyo Stock Exchange Hong Kong Stock Exchange Bombay Stock Exchange (BSE- India)

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9Functions of Stock Exchanges Raise Capital for Businesses Ready Market Mobilisation of Savings for investment Facilitating Company Growth Distribution of Wealth Improve Corporate Governance Creating investment Opportunities for

small investors Create Employment Opportunities Provides a physical location for buying and

selling securities

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10Methods of Trading in Stock Exchange

Specialists Floor Brokers Stockbrokers/Financial Advisers Day Traders Casual Traders Online Trading

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11Factors Affecting Stock Exchange

Economic Factors Inflation And Deflation Interest Rates Foreign Markets

Market Factor Demand AND SUPPLY Market Cap News Earning/Price Ratio

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Opportunities & Better returns Pronounced risk factor Speculation, rumours and news orientation Diverse type of participants Connectivity with other financial markets Dependence on commodity move Fiscal, monitory and taxation policy effects Sector performance and incentives by government

Features of stock market

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Muham

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13Advantages of Stock Exchange giving access to new capital to develop the business

making it easier for you and other investors - including venture capitalists - to realise their investment

allowing you to offer employees extra incentives by granting share options - this can encourage and motivate your employees to work towards long-term goals

placing a value on your business increasing your public profile, and providing

reassurance to your customers and suppliers allowing you to do business - eg acquisitions - by

using quoted shares as currency creating a market for the company's shares

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14Disadvantages of Stock Exchange Market fluctuations - your business may become vulnerable to market

fluctuations beyond your control - including market sentiment, economic conditions or developments in your sector.

Cost - the costs of flotation can be substantial and there are also ongoing costs of being a public company, such as higher professional fees.

Responsibilities to shareholders - in return for their capital, you will have to consider shareholders' interests when running the company - which may differ from your own objectives.

The need for transparancy - public companies must comply with a wide range of additional regulatory requirements and meet accepted standards of corporate governance including transparancy, and needing to make announcements about new developments.

Demands on the management team - managers could be distracted from running the business during the flotation process and through needing to deal with investors afterwards.

Investor relations - to maximise the benefits of being a public company and attract further investor interest in shares, you will need to keep investors informed.

Muham

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15Major Participants: Buyer and Seller

Individual Retail Investors

Institutional investors such as mutual funds, banks, insurance companies and hedge funds, and also publicly traded corporations trading in their own shares. &

The Government

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Why stock price moves up or down

Company doing good or bad business

Financial results and bright or depressive expectations

Players go for buying seeing rapid growth or selling anticipating depressed earnings

New innovative product launched / business explored

Some incentives / taxation affecting stock

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Growth in earnings and profitability Better management Cheaper inputs and raw material Demand going up for product or service News and rumours

Stocks mostly moves in speculation and attempt to discovers the right price

How Stock Gains

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18The Trading Procedure on a Stock Exchange

In order to purchase or sell securities on a stock exchange, the following steps have to be taken;

1. Selection of a broker: The buying and selling of securities can only be done through

SEBI registered brokers who are members of the Stock Exchange. The broker can be an individual, partnership firms or corporate bodies. So the first step is to select a broker who will buy/sell securities on behalf of the investor or speculator.

2. Opening Account with Depository: CDC – Central Depository Company (for transfer of shares).

There are three types of accounts open in CDC company;Investors Account – open by investors’ own nameSub-Account – open through brokerGroup Account – under the control of broker

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3. Placing the Order: After opening the Account, the investor can place the

order. The order can be placed to the broker either personally or through phone, email, etc.

Investor must place the order very clearly specifying the range of price at which securities can be bought or sold. e.g. “Buy 100 equity shares of Reliance for not more than Rs 500 per share.”

4. Executing the Order: As per the Instructions of the investor, the broker

executes the order i.e. he buys or sells the securities. Broker prepares a contract note for the order executed. The contract note contains the name and the price of securities, name of parties and brokerage (commission) charged by him. Contract note is signed by the broker.

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5. Settlement: This means actual transfer of securities. This is the

last stage in the trading of securities done by the broker on behalf of their clients. There can be two types of settlement.

(a) On the spot settlement: It means settlement is done immediately and on spot

settlement follows. T + 2 rolling settlement. This means any trade taking place on Monday gets settled by Wednesday.

(b) Forward settlement: It means settlement will take place on some future

date. It can be T + 5 or T + 7, etc. All trading in stock exchanges takes place between 9.55 am and 3.30 pm. Monday to Friday.

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21Types of Order

An order is placed by the investor to the broker to buy or sell stocks

There are different types of orders Each order has some purpose and has some distinct

advantages The orders are to be executed by the brokers

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22Types of orders

Day Order Order only valid for the day when it is given

Week Order Order only valid for the week when it is given

Month Order Order only valid for the month when it is given

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23Types of orders

Fill or Kill Order The order to be filled immediately or is considered cancel

Good till Canceled Order The order that stands valid until it is cancelled

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24LIMIT ORDER

Default order type for all single stock orders. The limit price for buy orders is placed below the

current market price. The limit price for sell orders is placed above the

current market price. Limit orders will be filled at the limit price or better,

but are not guaranteed a fill.

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25Types of Orders

Limit

Limit-buy order Stop-buy order

Limit-sell orderStop-loss orderSell

Buy

Price below the limit

Price above the limit

Condition

Acti

on

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26MARKET ORDER

Also known as "not held” order used to guarantee an execution, but not guarantee a price or time of execution.

The risk of market orders is that you have no control over what the execution price is.

Muham

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zan Mehar

27SPECULATION AND SPECULATOR

SPECULATION : It is the transaction of members to buy or sell securities on stock exchange with a view to make profits to anticipated raise or fall in price of securities.

SPECULATOR : The dealer in stock exchange who indulge in speculation are called speculator . They do not take delivery of securities purchased or sold by them , but only pay or rescue the difference between the purchase price and sale price . The different types of speculators are

BULL BEAR STAG LAME DUCK

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28BULL {TEJIWALA}

He is speculator who expects the future raise in price of securities he buys the securities to sell them at future date at the higher price.

He is called as bull because his activities resembles as a bull , as the bull tends to throw its victims up in the air through its horns. In simple the bull speculator tries to raise the price of securities by placing a big purchase orders.

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29BEAR {MANDIWALA}

He is speculator who expects future fall in prices , he does an agreement to sell securities at future date at the present market rate .

He is called as bear because his altitude resembles with bear , as the bear tends to stamp its victims down to earth through its paws . In simple the bear speculator forces of prices of securities to fall through his activities.

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30STAG {DEER}

He operates in new issue of market . He is just like a bull speculator . He applies large number of shares in the issue market only by paying , application money , allotment money. He is not a genuine investor because , he sells the alloted securities at the premium and makes profit. In simple he is cautious in his dealings . He creates an artificial rise in prices of new shares and makes profits.

Muham

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31LAME DUCK He is speculator when the bear operator

finds it difficult to deliver the securities to the consumer on a particular day as agreed upon , he struggles as a lame duck in fullfilling his commitment . This happens when the prices do not fall as expected by the bear and the other party is not willing to postpone the settlement to the next period.

Muham

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32Pakistan’s Stock Exchanges The Karachi Stock Exchange (KSE) was established on 18th

September, 1947. It was later converted and registered as a Company Limited by Guarantee on 10th March, 1949. the oldest stock market of Pakistan.

Lahore Stock Exchange (Guarantee) Limited came into existence in October 1970, under the Securities and Exchange Ordinance, 1969, of the Government of Pakistan in response to the needs of the Provincial metropolis of the Punjab. 

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.

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In January 11, 2016 the Karachi Stock Exchange, Lahore Stock Exchange and Islamabad Stock Exchange were integrated under the Stock Exchanges (Corporatisation, Demutualization and Integration) Act, 2012 to form the Pakistan Stock Exchange Limited as the only stock exchange in Pakistan.

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Thank You!