- What is a stock market?

A Stock Market is a marketplace that provides opportunities for buying or selling of shares. This is a platform where the buyers and sellers meet together to trade in all types of listed securities. A stock market brings together entrepreneurs who wish to raise money through the issue of new securities and individuals and organizations seeking to invest their savings or surplus funds. The stock market thus offers investors liquidity or the ability to convert the investments into cash at short notice thereby encouraging the flow of savings into productive ventures.  

- What is the role of a stock exchange?

• The exchange is responsible for vetting companies before they can be admitted to have their shares traded on public market.
• It provides a marketplace for shares to be bought and sold, by bringing companies and investors together in one place.
• It watches over the market to ensure that it is working efficiently and fairly thereby acting in a policing role for the market.
• Establishes rules for fair trading practices and regulates the trading activities of its members according to those rules.
• The exchange itself does not buy or sell the securities, nor does it set prices for them.
• The exchange assures that no investor will have an undue advantage over other market participants.
• Exchange also monitors the Listed companies that they disclose information in timely, complete and accurate manner to the Exchange and the public on a regular basis.

- Why Do We Need stock exchange?

Companies and investors both need stock exchanges, but for different reasons. For companies, stock exchanges provide a means of raising money to develop and expand their businesses. For investors, stock exchanges provide secure and reliable marketplaces in which they can buy and sell shares by transforming their savings to the investments.

- Islamabad stock exchange.

Islamabad Stock Exchange is the youngest stock exchange in Pakistan that was established in 1989 whereas trading of shares on this exchange started in 1992. Over the years, the ISE has played a crucial role in the capital formation of the companies and the wealth generation for its investors thereby contributing to the economic development of our country. ISE has its own state-of-the-art ISE Towers situated at 55-B, Jinnah Avenue, Islamabad.

- Regulatory structure of Islamabad stock exchange. 

The Islamabad Stock Exchange is a front-line regulator to control the trading activities that takes place at its trading platform. ISE works under the oversight of the Securities and Exchange Commission of Pakistan (SECP), which formulates rules for efficient and transparent trading of securities.

- The corporate structure of ISE.

The affairs of ISE are run by a Board of Directors that is headed by a Chairman. The Board has a total number of ten directors including the Chairman and the Managing Director. Five directors of the board are elected from the members of the exchange whereas the four are nominated by the SECP. The Chairman of the Board is elected out of four non-member directors on the board. The Managing Director acts as the chief executive officer of the ISE who is appointed with the prior approval of the SECP and is the tenth director by virtue of his office.

- Members of Islamabad Stock Exchange.

The trading of securities is done through members (brokers) of Islamabad Stock Exchange who buy ‘seats’ or memberships for conducting brokerage business at ISE after meeting the necessary membership criteria as devised by the ISE. The members of the ISE provide a link between investors and the stock market by buying and selling shares on behalf of the investors. The ISE continually monitors all the trading activities of its members to ensure that they are conducting the business within given legal framework. This in turn provides investors with a market they feel confident to use.ISE has 121 members out of which 45 are active members running their brokerage houses.

- What is a share?

Each share is a small stake in a company. You can buy large or small lots to match the amount of money you want to invest. When the company does well, its shares can rise in value. If the company hits a bad patch, its share can fall in value. Similarly, the dividend policy of the company has the same effect on prices. Now the shares are held electronically through a central depository company.

- Why do companies issue shares?

Companies can issue shares to raise money from investors. This money is used to help the company to develop its business and grow.

The companies can issue different types of shares but the main one that you will come across is an ordinary share. The shares give owners a stake in the company by claiming profits in the form of dividends and also enable them to vote at annual meetings of these companies.

- What is a listed company?

A company can only offer its shares for trading on the ISE after it meets the listing requirements of the ISE. Once listed, these companies have to comply with the disclosure and financial reporting standards prescribed by the SECP so as to provide all material information to the investors. This information is aimed to help the investors in making informed decisions about their investments.

- Why do investors buy shares?

Evidence shows that over periods of 10 years, investing in shares has provided greater returns than most other forms of savings. Shares can not only provide you with regular income in the form of dividends, but also have the potential to grow in value thereby providing you with the capital gains. The investors can invest in the companies listed at ISE.

- Ways of becoming a shareholder.

Shares of a company are offered at the stock market at the following stages

• Initial Public Offering (IPO)

When companies offer shares to the general public for the first time, it is known as floatation or an Initial Public Offering (IPO). These can be bought directly from the company without paying stockbroker’s commission. You might see an advertisement in a newspaper from a company issuing shares or your stockbroker might tell you about a company making an IPO. Simply fill in the share subscription form and deposit the form along with subscription cheque in a branch of the designated bank(s).

• Right Issues

Right issues are issued when companies need to raise additional capital to finance their expansion projects or to meet working capital needs, etc. In case of rights issues, the existing investors have the right to subscribe to these new shares in proportion to their respective shareholdings.

• Trading at Stock Market

The most common way of buying/selling shares is trading at the stock market.  The investors are required to open a trading account with any registered broker for buying/selling of shares.

- The mechanism of share dealing.

There are various ways of investing in the stock market: you can deal directly in shares, invest through a unit trust or investment trust or let your investment be handled by an advisor.

• Selecting a Stockbroker

Stockbrokers are your link to the stock market. Their job is to help you get the best available price when you want to buy or sell your shares. Be careful in selecting your broker. Ask references from people who frequently trade at the ISE and ensure that the stockbrokers/agents that you deal with are duly registered with the SECP. Normally the broker is selected on the basis of its reputation and on the basis of commission it is charging on the services rendered the investors.

• Opening of account

Once you have made a decision regarding the broker with whom you intend to deal, you should ensure that an account is opened in your name by filling the account opening form. Make sure that you are assigned a unique account identity and that all your transactions bear this identity. It is imperative that the terms and conditions prescribed in the account opening form are read very carefully and well understood by you. It will be in your interest to give clear instructions as to who can operate the account. It is preferred that if the investor gives specific instructions that business can be transacted in the account only on his/her instructions.

• Buying/Selling directly

Once you have decided to buy/sell shares of a particular company, contact your stockbroker or login to your account for online trade. You can ask to buy/sell a certain number of shares at or up to a certain value. Get the contract note confirming your order immediately and check for the following information:

    - Name and number of securities
    - Date on which the order is executed
    - Nature of transaction (spot, ready or forward and also whether bought or sold)
    - Price at which the transaction is executed
    - Commission charged by the broker.

• Types of Orders

- Limit Order: In a limit order, client specifies the price at which the order is to be executed.

- Market Order: Also known as at best order, it is executed at the prevailing market rate.

- Stop Order: A stop order is a special type of order to sell or buy a stock when the price of that stock reaches a pre-determined stop price. It is used by investors to limit the loss that an investor might encounter or to attempt to lock in a profit on a stock. Investors can issue a stop order to their stock broker to automatically sell the stock if the price of the stock drops to a specific price, called a sell stop order. In a buy stop order, the investor purchases the stock once it hits a specified price, hoping it will continue to rise.

• Rates of Commission

Stock brokerage commission varies  according to the price of shares being purchased/sold. It is recommended that at the time of opening trading account, the commission slab is obtained from the concerned broker. The average commission rate may be in the range of 5 paisa per share to 10 paisa per share.

• Central Depository System

An electronic book entry transfer of securities known as the Central Depository System has completely replaced the older system of physical transfer of shares. Investor account services have been introduced in order to facilitate individual investors to maintain their accounts directly with the CDC for safe custody of their shares. Investors are encouraged to open their own CDC accounts with the CDC.

- What happens when you are a share holder

There are several types of shareholders: some are long term investors who simply tuck away their investments for years while others trade frequently and keep a close eye on how their shares are performing. You can check your shares’ performance in various ways. A daily indicator of share price movements is available in many newspapers, TV channels and also on the website of the relevant stock exchange. You may access this information directly or indirectly or through your stock broker/advisor.

Information articles about many companies are regularly published in newspapers, investment magazines and on exchange publications. Your stockbroker may also provide valuable information. Some publish newsletter for their clients, reflecting their views on the performance of selected companies. Annual reports of companies also contain useful information including the financial highlights of the company. Some companies have shareholder relations departments that can help with factual information.

- Important things to know.

• Buying shares can offer advantages over saving in deposit accounts. You share the rewards when the company does well and the price of the shares goes up. But, if the company performs badly, the share price may go down and the value of your investment will be reduced.

• Other factors such as the performance of the stock market as a whole and the general economic climate may also affect the price of your shares. This is the risk you take with owing shares and it is not known for companies on the stock market to go out of business altogether.

• Shareholders’ funds are ‘risk capital’. Shareholders can be rewarded for taking this risk and the potential returns on your money can be higher than other investments.

• Investment in shares is not a route to instant wealth and should be viewed as an investment to hold over several years. The price of shares can go down as well as up, so do not invest money, which you need: make sure you keep some money readily available in a deposit account. Then, if you need cash urgently, you will not be forced to sell shares if the price is low at that time.

• Buying and selling shares and tracking their performance can be time consuming but it can also be rewarding for those who have the time to manage their own investments.

• You are cautioned to not invest any money with the stockbroker as a deposit at a fixed rate of return. Such a deposit has no legal standing and the investor is exposed to the risk of losing his money.

• The aim of investing in stock and shares is to buy low and sell high. Knowing when, however, is the challenge. Many investors attempt to time the market: they try to figure out when the market is going up and buy before it does and then anticipate when it is going to crash and sell before that. Usually you try to buy when the upswing has begun and sell as the downswing starts. However, such accuracy is extremely difficult to determine.

• The stock market is driven by two emotions: greed and fear. People are usually caught up in the boom fever and pay beyond the worth of shares – this is the greed that drives bull market. In bear markets, people get carried away with the ruling pessimism and are eager to sell their investments leaving in the worst rumors – this is the fear that dominates bear markets.

- Investor protection

You should always ensure that the stockbroker you choose to deal with is registered member of the ISE and is also registered as broker with the SECP. As a shrewd investor, you should know your rights and responsibilities and should be aware of the rules that govern your investments as well as the legal recourse available in case things go wrong.

ISE is a front line regulator and as such has elaborate systems to address investor’s complaints. Should you have a complaint regarding any member of ISE,  contact the ISE management at the following address:

Department of Investor Relations
Islamabad Stock Exchange,
55-B, ISE Towers, Jinnah Avenue,
Islamabad.
Phone: (92-51)111-473-473
Fax:     (92-51)-111-473-329
 
You can also file your complaint with the SECP at the following address: