A complete guide to the capital market of Pakistan by The Institute of Financial Markets of Pakistan

1. Demystifying Capital Markets:
From Investment, Educating Investors & Careers
Perspective
Institute of Financial Markets of Pakistan

2. What is IFMP?
 Established in 2008: with a mission to enhance the technical and ethical
standards of capital market and insurance professionals of the Pakistan.
 Formed as a ‘not for profit company’ by SECP along with majority of the key
capital market stakeholders.
 Mandated to:
 certify and train different segments of the capital market & insurance
industry
 provide platform for research and development, and
 provide consultancy services on matters pertaining to capital markets.
 Since inception, institute :
 is currently offering eighteen (24) certification program for different
segments of the industry
 has already registered over 8,000 candidates and has more than 5,000
fulltime members
Institute of Financial Markets of Pakistan

3. How to buy a Share/Stock?
 Registered Brokerage Firm (Stock Brokers)
 More than 200 registered Brokers
 AKD Securities, Arif Habib, Jahangir Siddiqui, Foundation Securities, BIPL
Securities, BMA, Darson Securities etc
 Open a free account with minimum balance
 Subscribe to Research reports and analysis
 Obtain an access to online trading terminal
 Ask for training to operate the terminal
 Ask for contact details of equity dealer/trader
Institute of Financial Markets of Pakistan

4. Careers in Capital Market
Stock market has expanded exponentially, creating a multitude of jobs for
investments brokers, financial analysts, professionals and more.
Institute of Financial Markets of Pakistan
Stock Market Mutual Funds Banks
Deal Manager Investment Advisor Corporate/Investment
Banking
Equity Dealer Fund Manager Relationship Manager
Research Analyst Dealer Banc assurance
Settlement Officer Research Analyst Investment Manager (CMD)
Compliance Officer Sales Agent Research Analyst

5. Mandatory Certifications for Brokerage Industry
 Stock Brokers Certification
 Commodity Brokers Certification
 Fundamentals of Capital Markets Certification
 Pakistan’s Market Regulations Certification
 Financial Analyst Certification (designed in collaboration with CFA Institute)
 Securities and Futures Advisers Certification
Mandatory Certifications for Mutual Funds Industry (incl; banks selling MFs)
 Mutual Funds Distributors Certification
 Fundamentals of Capital Markets Certification
 Pakistan’s Market Regulations Certification
Mandatory Certifications for Insurance & Takaful Industry
 Life & Non-Life Insurance Sales Agent Certification
 Family & General Takaful Agent Certification
 Bancassurance Certifications
Institute of Financial Markets of Pakistan

6. 6
About SECP
• SECP was established after the promulgation of the SECP Act 1997,
previously called Corporate Law Authority (CLA).
• SECP is responsible for the supervision and regulation of:
o Corporate sector;
o Capital Market;
o Insurance sector; and
o NBFCs
• Also entrusted with oversight of various external service providers
to the corporate and financial sectors, including
o Chartered Accountants,
o Credit Rating Agencies,
o Corporate Secretaries,
o Brokers and Surveyors.

7. 7
FUNCTIONS & RESPONSIBILITIES
Administration & Enforcement of Corporate Laws
Registration and Regulation of Companies
Regulating Primary & Secondary Securities Market
Protecting the Interests of the Investors
Improving the Overall Regulatory Framework
Public Facilitation and Awareness
Enforcement and Compliance Actions

8. 8
SECTORS UNDER SECP’s AMBIT
COMPANY LAW
DIVISION
SECURITIES MARKET
DIVISION
SPECIALIZED
COMPANIES
DIVISION
INSURANCE
DIVISION
Public Listed
Companies
Pakistan Stock Exchange
(PSX)
Asset Management
Companies
Life Insurance
Companies
Public Unlisted
Companies
Commodity Exchange
(PMEX)
Mutual Funds and
Trustees
Non-Life insurance
companies
Private Limited
Companies
National Clearing Company
of Pakistan Ltd (NCCPL) Investment Banks
Takaful – General
and Life
Single Member
companies
Central Depository
Company (CDC)
Leasing Companies
Insurance Brokers
and Surveyors
Companies Limited by
Guarantee
Brokers and Agents
Housing Finance
Companies
Not for Profit
Companies
Credit Rating Companies
Share registrars,
Underwriters & Balloters
Voluntary Pension
Schemes
Foreign Companies REITs
Modarabas
Private Equity &
Venture Capital

9. 9
Investment Avenues

10. 10
• According to goals and the amount of capital available
• Risk appetite; because all investments carry a certain degree of risk.
• Do not invest money to meet immediate expenses.
How & Where to Invest

11. 11
Investment Avenues
• Ordinary Shares
• Preference Shares
• IPOs
Equities
• Corporate bonds/Sukuk
• Govt bonds/Sukuk
Debt
Securities
• Futures Contracts
• Stock & Index Futures
• Stock and Index Options
Derivatives

12. 12
Investment Avenues
• Exchange Traded
Funds
• Mutual Funds
Mutual
Funds
• An investment to
manage risk in
future
Insurance
• Voluntary Penson
Scheme
Pension

13. 13
Insurance is based on a mechanism called "risk pooling", or group sharing of
losses.
People exposed to a risk agree to share losses on an equitable basis, so they
transfer the economic risk of loss to an insurance company.
By carefully calculating the probability of losses that will be sustained by
members of the pool, insurance companies can equitably spread the cost of
the losses to all members
Insurance
LIFE INSURANCE (insurance against a persons death or a
defined event such as critical illness)
NON-LIFE INSURANCE
• Auto insurance
• Fire Insurance
• Travel insurance

14. 14
Voluntary Pension Scheme
A Voluntary pension System (VPS) allows an investor to save for retirement
by selecting a suitable investment option

15. 15
What is a Mutual Fund?
• An investment vehicle to pool savings of many investors
who share a common financial goal.
• Money collected in mutual fund is invested by Asset
Management Company in different asset classes like bonds,
equity, money market instruments and commodities.
• Any income earned on investments and/or any capital
appreciation (or loss) is distributed to unit holders after
deduction of applicable taxes.

16. 16

17. 17
How does Mutual Funds work?

18. 18
The Capital Market – An Introduction
Capital market is a market where buyers and sellers engage in
trade of financial securities like bonds, stocks, etc.
A capital market is a market for securities (debt or equity),
where business enterprises (companies) and governments can
raise long-term funds from general public (Investors).

19. 19
• Market of New Issues
• Public Offerings (IPO /OFS)
Primary Market
• Market of Existing Securities
• Trading of Listed Securities
Secondary Market

20. 20
Channelize Savings
Fund raising Option
Investment Avenue
Secondary market benefits
Bank Based vs Market Based
Importance

21. 21
Importance- A Real Time Example
Government has raised Rs.400 billion via Privatization
of govt. owned companies through Stock Exchange
Investors have made average return of more than 20%
per annum in the last 10 years [KSE-100 Index]
Listed companies raised more than Rs.1 trillion rupees
through debt and equity securities during last 5 years

22. 22
Opportunities for Investors
Direct
Investment
Stock Market
• Dividends
• Capital Gains
• Fixed Returns
• Speculation
Indirect
Investment
Mutual Funds
• Equity Funds
• Debt Funds
• Money Market
Funds etc.

23. 23
Issuers
(Users of Funds)
Companies
Substantial
shareholders
Service
Providers
Financial
Market
Infrastructure
Institutions
Intermediaries
Support
services
providers
Investors
(Providers of funds)
Individual
Institutional
Participants of Capital Market

24. 24
Modes of Public Offerings
• IPO is the first time sale of securities by a company to
the public. It is one of the modes of fundraising from the
capital markets.
• OFS is sale of shares by existing substantial shareholders
Methods of public offering
• Fixed price method
• Book Building Method
Public Offerings

25. 25
Service Providers
Financial Market Infrastructure Institutions
• Securities and Futures Exchanges
• Clearing and Depository Companies
Intermediaries
• Securities Broker and Futures Brokers
• Securities Advisor and Future Advisors
• Clearing and Custodian Members
Support services providers
• Credit Rating Agencies and Auditors
• Consultants, Advisors, Lead Managers & Book Runner
• Balloters, Transfer Agents & Underwriters

26. 26
Pakistan Stock Exchange
(2016)
National Clearing
Company Pakistan
Limited
(2001)
Central Depository
Company (1997)
Pakistan Mercantile
Exchange
CAPITAL
MARKET
Commodity Futures
Financial Futures

27. 27

28. 28
Introduction
28
Sole depository in the country.
 Started operations in 1997
 Central Depository Company of Pakistan Limited (CDC) is
the only depository company in Pakistan.

29. 29
Automated Settlement Transactions
Free-Delivery Securities Transactions
Corporate Actions related Transactions
Other Transactions e.g. conversion,
merger
CDS- Transactions (Activity)

30. 30

31. 31
What NCCPL does ?
• Incorporated on July 03, 2001
• Manage in a fully automated electronic settlement system.
• Institution responsible of settlement of trades among
brokers and Financial institutions.
• Net position to be settled after two days
• Trading plus 2nd day settlement (T+2)

32. 32
Trading
data from
PSX
Preparation
of Balance
Order
Auto Pay
and Collect
System
Automated
Securities
Settlement
NCCPL Work Flow

33. 33
Pakistan Stock
Exchange Limited

34. 34
Equity
Bonds
Derivatives
Market Segments

35. 35
Karachi
Automated
System
(KATS)
Bonds
Automated
System
(BATS)
Deliverable
Futures
Market
(DFM)
PSX Trading Platforms

36. 36
Trading
Systems
Risk
Management
System
Clearing and
Settlement
Depository
System
MARKET OPERATING SYSTEMS

37. 37
STOCK MARKET WORKING

38. 38

39. 39
Stock index acting as a benchmark to compare prices on the
Pakistan Stock Exchange (PSX) over a period.
KSE 100 Index
Market Capitalization
It is the market value of a company's outstanding shares.
Stock Price Total number of shares outstanding

40. 40
There shall be a security-wise
circuit breaker in case of price
fluctuation of 7.5% or Rs. 1/-,
whichever is higher from the
Closing Price of the previous day or
any other limit as prescribed by the
Exchange.
Upper/Lower Caps
Circuit Breakers)

41. 41
T + 2 Rolling Settlement System
• Trading plus 2nd day settlement
• Net position to be settled after two days

42. 42
How can you be a Stock Investor?

43. 43
Investor
Stock Market
Access Flow
Broker

44. 44
How does “BROKER” operate?
Broker
Securities
Exchange
TREC holder
Automated
Trading
System
Central
Depository
Participant
Central
Depository
System (CDS)
Clearing
Company
Clearing
Member
Clearing and
Settlement
System

45. 45
Account Opening Process

46. 46
Stock Market Trade
Investor
Registration
Pre-trade
Margin
Order Making
Order
Execution
Trade
Confirmation
Data transfer
to NCCPL
Netting of
Trades
Balance
Orders
Money
Obligation
Instruction to
Settling Bank
Debit Buying
Broker
Credit Selling
Broker
Securities
Obligation
Instructions
to CDC
Pick from
Seller A/c
Park in Buyer
A/c

47. 47
Trading Flow

48. 48
Action
Making
Order
Order
Execution
Order
Matching
Order
netting
Transfer of
funds
Transfer of
Securities
System
Private
System
Brokerage
Accounting
System
Automated
Trading
System
Clearing &
Settlement
System
Electronic
Banking
System
Central
Depository
System
Functions
Investment Broking
Execution
of Trades
Obligation
Settlement
Money
Obligations
Securities
Obligation
Participants
Investor Broker
Stock
Exchange
Clearing
Company
Settling
Bank
Depository
Company
Complete Trade Flow

49. 49
Before you start Investing…
You should know…..!!!
How much money I will invest…??
Where I want to Invest….???
How Active I will be in Market…???
Size of Portfolio
Exposure
Stocks, Bonds,
Mutual Funds,
Commodities etc.
Long Term
Short Term
Day Trader

50. 50
• Political uncertainty
• Expected rupee devaluation
• Foreign investor net outflow
• COVID
• FATF Grey List
Apparent reasons for market decline:
• Market touched lowest around 43000 points
• But Banks, Insurance Companies and Mutual Funds
are playing active role and have acquired shares sold
by foreign investors
Impact
Recent Market Trends

51. 51
• A substantial portion of economy is
undocumented and depends on
informal channels for financial
services.
Undocumented
economy
• A very small portion of public savings
reaches the real economy through
the capital market
Low savings rate
• SMEs starved of financing, others not
interested
few hundred
listed companies
• It leads to problems like low volumes,
difficulty in fund raising inefficient
price discovery and consequently
impaired investor confidence
Small number of
active investors
Key Challenges

52. 52
• debt and futures markets
remain largely inactive and
underdeveloped
Lack of viable
investment
alternatives
• financial/capital market
institutions and products
(especially in smaller cities)
Limited outreach
• Stigma of previous defaults
and scams.
Public
confidence
• Even people dealing with
financial services are not
aware
Lack of
Awareness
Key Challenges

53. 53
You want to Invest…???
But……

54. Ethics, Disclosures and Best
Practices
Dissemination of information

 The process of making maximum possible information available
Informed and research based investment decision
Semi-annual and annual reports are important documents that
contain a lot of information on performance that is useful to
investors



55. Disclaimers, policies and their
disclosure requirements
Disclaimers
 If in doubt, investor should consult
Price and income may vary
The target return/dividend range for the Fund cannot be
guaranteed



56. Investor Profiling (KYC)
 Essentially important to avoid any wrong selling
The profile of the investor is determined by factors like;
age, gender,
 Personal investment objectives and other factors such as
income, wealth, family size, tax implications etc


Attitudes, linked to the temperament (emotions) and the beliefs
Financial return / risk objectives
 Other Information and Investor Preferences


57. Investor Records
 A database of current, historical and prospective investors
The ability to categorize investors
The ability to profile investors according
interests and circumstances
to their specific
The ability to build distribution
Tracking information flows





58. Prohibitions and Restrictions

 Material information
 Is the information about certain aspects of a company that has not
yet been made public
Illegal for holders of this material insider information to use the
information

 Insiders Trading
Trading without consent
 Are the trades executed by investor himself or by his
consent
Have the record of the trade communication been
maintained


59. Anti Money Laundering Act 2010
and KYC/ CDD requirements
SECP has issued AML/CFT Regulations 2020
Meeting KYC/CDD Requirements as prescribed in the
Regulations

Prevention of intermediaries involvement in money
laundering and other illegal trades
Must formulate and put in place a comprehensive
customer due diligence/know your customer (CDD/KYC)
policy



60. Anti Money Laundering Act 2010
and KYC/ CDD requirements
 High Risk customer with respect to Due Diligence
indicated and include
have been





Non-residents customers
Non-governmental organizations
Customers with links to offshore tax havens
Politically exposed persons
High net worth individuals and similar others

61. Fair Dealing
 Risks & Rewards of Investing
Maintenance of Records
Time Stamps
 Misstatements & Mis-selling / False Selling



62. Investor Complaints



No defined procedure or standard operational
Complaints can be made to the SECP Possible
Malpractices:
practice








Unauthorized trading (Sale/Purchase)
Unauthorized transfer/ movement of fund
Non-supply of statements of trading
Overcharged Commission
Failure to execute investors’ instructions/ orders
Suspension of payment
Wrong announcements/news
Delay in payments

63. 63
THANK YOU
“The more you know, the more
you know that you don’t know”