Director's Report

The Board of Directors of Islamabad Stock Exchange (Guarantee) Limited is pleased to present the Annual Report for the financial year 2001-2002, and the Audited Accounts together with the Auditor's Report for the year ended June 30, 2002.

HIGHLIGHTS OF FINANCIAL RESULTS
During the year under review, the ISE showed a splendid financial performance due to dedicated efforts of the ISE management. Besides boosting revenue from traditional sources of income such as annual listing renewal fee, additional listing fee on bonuses and right issues of companies and trading fee from the members, the ISE also succeeded in recovering substantial arrears that were past due from some of the companies listed at our Exchange.
Salient highlights of the accounts are as follows:

The Exchange earned a record surplus (before tax) of Rs. 24.10 million, which represents a landmark improvement over last year's surplus. However, along with the improvement in revenue, the Exchange also recorded increase in expenditure, mainly due to increased spending on advertisement, traveling & lodging and audit fee. Besides, an amount of Rs. 4.100 million was also incurred during 2002 for software development.

STOCK MARKET OPERATIONS
Despite a worldwide setback to the financial services industry resulting from events of 11/09/2001, the Pakistani stock market quickly recovered to gain prominence as the best performing markets in the world. It is no small feat that during a period of international stock market meltdown, the Pakistani markets demonstrated an unmatched quality of maturity and very strong level of stability. The credit for such historic performance of our markets goes to the Securities and Exchange Commission of Pakistan (SECP) that created a dynamic enabling environment through its wide-ranging market related reforms pursued during the last few years. It is only because of these reforms that the Pakistani stock markets have grown in their stature to compete with some of the best markets in the world today.
Islamabad Stock Exchange, which also started the year under review on a low note, followed the high growth path of the other two stock exchanges of the country and ended the year at a sharply higher level. During the year, the ISE index, which stood at 3918.87 on 1 st January 2002 went up to 5283.8 by 24th November 2002 showing an escalation of 35%. It is really heartening to note that our market still continues its ascending path and promises good prospects to our investors.
Here, it would not be out of place to mention that in addition to the SECP led reforms, the ISE also made significant contributions at an operational level so as to play a critical role in the system of self-regulation. Measures such as introducing a policy of annual system audit of all active broker Members, strengthening of surveillance & risk assessment system and increased spending on trading software/automation were all aimed at helping in the consolidation of our market and to limit the risks associated with stock market operations. These actions not only added further credence to our market but also enabled us to emerge as a preferred market of choice in our region by augmenting the confidence of investors in our stock market.

RESTRUCTURING OF ISE
One of the prime reforms introduced by the SECP has been in the direction of improving the governance mechanism of the stock exchanges in Pakistan. These reforms called for installing independent and professional Managing Directors/CEOs at the stock exchanges and also mandated for restructuring of the Board of Directors. While the ISE not only espoused the changes towards restructuring of its Board of Directors through amendments in its Articles of Associations, but also took a step further by introducing a matching internal structure so as to implement the essence of these reforms. The ISE has also appointed a highly professional Managing Director to independently run the affairs of the ISE.
We, at ISE, believe that these changes will not only lead us to maximize our efficiency but will also enable us to revitalize our operations for the good of our investors.

CORPORATE GOVERNANCE AT ISE
In the wake of recent criticism on fraudulent accounting practices in some of the bestknown corporate entities in the World, the issue of corporate governance has assumed much greater importance. Following the formulation of a comprehensive code of corporate governance by the SECP, all three bourses also adopted this code in their listing regulations so as to enable the listed companies to follow purposeful disclosure and accounting policies.
Due to the central role of the Stock Exchanges as the front line regulators in checking compliance of the listed companies with this code, the ISE Board of Directors has thought it proper to first apply the strictures of this code on itself for bringing more transparency in the business of the exchange. As a first step towards this policy, the ISE Board of Directors has recently approved a new mission statement that broadly describes our corporate purpose and leads to the formulation of our strategy in harmony with the expectations of our stakeholders. Next, the ISE has also taken on an idiosyncratic motto " Prosperity through Transparent Market." It is hoped that the motto will serve to convey a unique corporate image of ISE by effectively communicating a message that will appeal to our investors and the listed companies alike.
In line with our policy towards implementation of all facets of the code of corporate governance, the Board of Directors further declares that:

• The financial statements for the year ended June 30,2002, together with the notes thereon have been prepared in conformity with the Companies Ordinance 1984. These statements fairly present the financial and operational health of the Exchange.
• Proper books of accounts have been maintained at the ISE.
• Appropriate accounting policies have been consistently applied in preparation of financial statements and accounting estimates are based on reasonable and prudent judgment.
• The system of internal control is sound in design and has been effectively implemented and monitored.
• The Exchange is viable to continue as a going concern.
• There has been no material departure from the best practices of corporate governance.
• The Board of Directors held I 1 meetings during the year. Overall 56% attendance was witnessed in these Board meetings.
• The Board members including Chairman and directors are not paid any honoraria/remuneration for serving on the board. Only the Managing Director of ISE serves as the full time paid executive on the Board.

AUDITORS
The present auditors, M/s S.M Masood & Co. Chartered Accountant stand retired and being eligible have offered themselves for reappointment. Besides, M/s Jamil & Co. Chartered Accountant have offered themselves for appointment as auditors of the Exchange for the year 2002-2003. Their offer has been proposed by one of the Members of the Exchange.

SHAREHOLDINGS IN RELATED COMPANIES
During the year, the ISE continued the expansion of its stake in related companies so as to
get an opportunity to represent ISE on the Board of Directors of these companies. This policy is aimed at furthering the interests of ISE by obtaining representative stake in those related companies that stand to provide services to the investment communities. In this regard, the ISE invested an amount of Rs 5.00 million for 10% equity stake in the newly formed National Commodity Exchange Limited. The NCEL has been established to conduct and regulate the trading of future commodities in the country. It may be mentioned that the ISE also holds stakes in M/s JCR VIS Credit Rating Company Limited, Central Depository Company of Pakistan Limited, and National Clearing Company of Pakistan Limited.

ELECTION OF DIRECTORS AND CHAIRMAN
The Directors and Chairman retire on the date of Annual General Meeting. The elections for the appointment of new member directors will be held on the eve of the AGM in accordance with the provisions of the Articles of Association of Islamabad Stock Exchange (Guarantee) Limited. The Chairman of the Board of Directors will be elected by the newly constituted Board from amongst the elected directors.

ACKNOWLEDGEMENTS
The Board places on record its gratitude to the Chairman and other officials of the Securities and Exchange Commission of Pakistan, the Ministry of Finance, State Bank of Pakistan and other government functionaries/departments/ agencies for their continued support and guidance in all matters related to the Exchange throughout the year.
The Board also expresses its appreciation for the valuable services, loyalty and laudable efforts continuously rendered by the employees of the Exchange. The Board recognizes that they continue to be the most valuable asset for the Exchange.
The Board also thanks all outgoing Directors and the Members of the Exchange for their wholehearted support and co-operation in all matters. The Board also takes this opportunity to welcome all new members who have been elected during the year 2002.

CONCLUSION
The Board of Directors hopes that all stakeholders will find the progress made by the Exchange as satisfactory and will continue their patronage for making this Exchange as one of the important markets for capital generation in the country.

For and on behalf of the Board of Directors

Aftab Ahmad Ch.
Managing Director