Pakistan Mercantile Exchange - PMEX

Karachi Stock Exchange- Definition

                                                                                                    

The Karachi Stock Exchange or KSE is a stock exchange located in Karachi, Sindh, Pakistan. Founded in 1947, it is Pakistan's largest and oldest stock exchange, with many Pakistani as well as overseas listings. Its current premises are situated on Stock Exchange Road, in the heart of Karachi's Business District. It the oldest and largest stock exchange in Pakistan. It was established in 1947, and has historically been known for strong performance and high liquidity. However, the 2008 economic crisis and political instability in Pakistan caused the Karachi Stock Exchange to drop by more than a third between April and June 2008. See also: KSE 100 Index.

Introduction to KSE

 The biggest Stock exchange of Pakistan located in Karachi is the Karachi Stock Exchange. Due to the liquidity offered by the Karachi Stock Exchange, it is known as stated as the “Best Performing Stock Market of the World for the year 2002”.

Karachi Stock Exchange (KSE) is the biggest and most liquid exchange in Pakistan with the average daily turnover of 525.15 million shares and market capitalization of US $ 54.28 billion. The international magazine 'Business Week' announced the KSE as the best performing world stock market in 2002. Since then the KSE continuously maintains the reputation as one of the best performing markets in the world.

Since 1991, foreign investors have an equal opportunity together with local investors to operate in the secondary capital market on the Karachi Stock Exchange. The establishment of the new policy for foreign investors and initiated privatization in Pakistan has accelerated the development of the KSE, which had even 663 companies listed in 2006. In addition, companies have a choice to be listed on one of the two markets - the ready market and the over-the-counter (OTC) market, which has lesser listing requirements. While the ready market requires listing companies to have minimum paid up capital of Rs 200 million (about UK 1.8 m), the companies with minimum of Rs 100 million can be listed on the OTC market.

The Karachi Stock Exchange trades the KSE-100 Index. It is a highly-diversified index of 100 largest capitalization companies' stocks from all sectors of Pakistan economy. A constantly revised index is a good indicator of the overall Exchange performance over a period of time. In 2005, 88% of the KSE total market capitalization was represented by the KSE-100 Index.

The membership in the Karachi Stock Exchange is limited. Only 200 individual and corporate entities can register as members in the KSE. In 2005, 162 members traded actively on the Exchange. In addition, foreign corporate entities may also become the members of the KSE with the condition that the nominee member of the company is a citizen of Pakistan.

Nature of the Karachi Stock Exchange

Although initially the Karachi Stock Exchange was a physical exchange where trading took place by an open outcry system, now the Karachi Stock Exchange is fully automated.

Stock markets refer to a market place where investors can buy and sell stocks. The price at which each buying and selling transaction takes is determined by the market forces (i.e. demand and supply for a particular stock).

Karachi Stock Exchange History                         

Karachi Stock Exchange is the biggest and most liquid exchange in Pakistan. It was declared the “Best Performing Stock Market of the World for the year 2002”. As of Sept25, 2009, 654 companies were listed with a market capitalization of Rs. 2.806 trillion (US$ 33.81 billion) having listed capital of Rs. 705.873 billion (US$ 10.615 billion). The KSE 100TM Index closed at 9359 on Sept 29, 2009.
The Karachi Stock Exchange, the oldest exchange in Pakistan, was established in 1947 and became a registered company limited a few years later. Since then it has experienced a remarkable progress with only 5 companies listed and 90 members on the Exchange in the 1950s and 663 listed companies and 200 members in 2006.

In 2002, the Karachi Stock Exchange was recognized internationally by the magazine 'Business Week' as one of the best performing stock markets in the world.

The Karachi Stock Exchange has started trading through the computerized trading system KATS (Karachi Automated Trading System) since 1997. As the demand for Trading Workstations installation has been significant during the consecutive years, today over 1000 KATS workstations are already installed. In 2005, trading in the Internet was also initiated.

Since 1990, corporate entities can become members on the Karachi Stock Exchange. However, they have to meet stringent requirements of the Board of Directors and own a minimum capital of Rs. 20 million (approximately UK 181,000). At the beginning of 2006, 120 corporate members were registered in the Exchange.

The Karachi Stock Exchange introduced KSE 50 Index at the end of the 20th century. However, because of the growth in the stock market, the Index did not represent the stock market performance anymore. Thus, in 1991 a capital weighted KSE 100 Index launched. At the moment, the Exchange successfully trades two world-famous indices - KSE 100 Index and KSE All Share Index, which was introduced in 1995.

Evolution of the Karachi Stock Exchange

By 2007, the number of listed companies reached 754 by the year 2007. The market capitalization at the same time was US $52 billion whereas the listed capital was US $8.27 billion. Following the estimates of the State bank Of Pakistan, we see that the foreign investments in the capital market are as large as US $ 523 million.

The performance of the Karachi Stock Exchange has been wavering since the beginning of 2007. This could be because 2007 is an election year.

Karachi Stock Exchange Indices

The Karachi Stock Exchange uses the following index:

• 50 Shares Index:  This index was used initially but as the market grew there was a need for a new index.

• KSE-100: The KSE-100 is a benchmark used to compare prices over a period of time. For the construction of the KSE-100 companies is with the highest market capitalization. To make the selection more representatives, the companies from all the sectors are chosen. The index was introduced in 1991 with 1000 as base points. By 2001 it has grown to 1770 points, in 2005 to 9989 points and reached a peak of 12285 by 2007. The KSE-100 is a capital weighted index comprised of 100 companies.

• KSE-30: This index was introduced at the end of 2006. it is comprised of 30 most floating stocks. By 1997 the KSE-30 traded at 14199 points.

Business Trading

The exchange has pre-market sessions from 09:15am to 09:30am and normal trading sessions from 09:30am to 03:30pm. It is the second oldest stock exchange in South Asia The Karachi stock exchange has undergone a considerable deal of downturn partly due to global financial crisis and partly on account of domestic troubles. It remained suspended in excess of 4 months and resumed normal trading only on December 15, 2008. The KSE 100 Index and KSE 30 Index after hitting the low around mid January has now rebounded and recovered 20-25% till March 12 2009.

Growth

The KSE is the biggest and most liquid exchange in Pakistan and in 2002 it was declared as the “Best Performing Stock Market of the World” by Business Week. As of December 20, 2007, 671 companies were listed with the market capitalization of Rs. 4364.312 billion (US$ 73 Billion) having listed capital of Rs. 717.3 billion (US$ 12 billion). On December 26, 2007, the KSE 100 Index reached its highest value ever and closed at 14,814.85 points.

Foreign buying interest had been very active on the KSE in 2006 and continued in 2007. According to estimates from the State Bank of Pakistan, foreign investment in capital markets total about US$523 Million. According to a research analyst in Pakistan, around 20pc of the total free float in KSE-30 Index is held by foreign participants.

KSE has seen some fluctuations since the start of 2008. One reason could be that it is the election year in Pakistan, and stocks are expected to remain dull. KSE has set an all time high of 15,000 points, before settling around the 14,000 mark.

Karachi stock exchange Board of Directors has recently (2007) announced plans to construct a 40 story high rise KSE building, as a new direction for future investment.

Disputes between investors and members of the Exchange are resolved through deliberations of the Arbitration Committee of the Exchange.

KSE began with a 50 shares index. As the market grew a representative index was needed. On November 1, 91 the KSE-100 was introduced and remains to this day the most generally accepted measure of the Exchange. Karachi Stock Exchange 100 Index (KSE-100 Index) is a benchmark used to compare prices overtime, companies with the highest market capitalization are selected. To ensure full market representation, the company with the highest market capitalization from each sector is also included.

In 1995 the need was felt for an all share index to reconfirm the KSE-100 and also to provide the basis of index trading in future. On August the 29th, 1995 the KSE all share index was constructed and introduced on September 18, 1995.

Sector wise Performance of KSE

Oil and gas Sector, food producers, chemicals, construction and materials were the outperforming sectors during the current year. Performance of some of the major sectors is mentioned below.

Oil and Gas

In this sector 12 companies are listed at the Karachi Stock Exchange. In addition to the oil and

gas exploration companies, oil marketing companies and refineries are also listed in this

sector. Due to global increase in prices and higher consumption, Pakistan’s oil and gas sector has also shown good profits, and continued to be the major market player. In the year 2011 the total profit before tax was Rs. 196,116.97 million, whereas profit after tax was Rs. 134,496.29 million. In the year 2010 the profit after tax was Rs. 104,249.82 million. As on March 31, 2012 the total market capitalization of this sector was Rs. 1,186,015 million as against total paid up capital of Rs. 74,537.225 million. Chemicals Within this sector 32 companies are listed, with total paid up capital of Rs. 95,480.23 million and the market capitalization was Rs. 393,536.80 million. The profit after tax of this sector was Rs. 49,515.7 million. Six fertilizer manufacturing companies are included in this sector which has earned good profits during the year. These include Engro Chemicals, Fatima Fertilizer Company, Fauji Fetilizer Company and Fauji Fetilizer Bin Qasim etc.

Construction and Materials

This sector comprises of 36 companies, with total listed capital of Rs. 77,003.96 million and the market capitalization of Rs.113,500.56. On the back of higher cement prices and increase in local demand the sector also showed growth which translated into good financial results compared to last year. In 2011 the total loss after tax has come down to Rs.404.275 million as against total loss of Rs. 6,107.25 million in year 2010.

Automobile and Parts

The sector comprises of 16 companies with the total paid up capital of Rs. 6,940.80 million and the total market capitalization was Rs. 43,857.87 million. The sector posted total profit of Rs. 4,519.86 million in year 2011. Automobile sales also picked up in spite of increase in prices of locally manufactured cars.

Personal Goods

This is the largest sector with 188 companies (mostly related to the textile sector) with a listed capital of Rs. 54,366.23 million and market capitalization of Rs. 54,366.23 million. The total profit after tax of this sector was Rs. 26,807.96 million.

Fixed Line Communication

The sector comprises of 5 companies which includes PTCL with capital of Rs. 51,000 million. The total paid up capital of this sector is Rs. 68,858.86 million and the market capitalization of Rs. 51,638.25 million. The total profit after tax was Rs. 2,828.473 million in year 2011.

Food Producers

This sector comprises of 57 companies (mostly sugar related) with total paid up capital of Rs.20, 476.29 million and market capitalization of Rs. 383,406.15 million. The profit after tax of this sector was Rs.16, 462.50 million in year 2011.

Commercial Banks

The sector comprises of 23 listed banks with listed capital of Rs. 382,507 million and market capitalization of Rs. 774,521.13 million. The total profit after tax of this sector increased to Rs.104, 213.46 million from Rs. 65,060.58 million in year 2010.

Pharmaceuticals and Bio Tech

The sector comprises of 9 listed pharmaceutical companies with paid up capital of Rs. 4,955.77 million; whereas the market capitalization was Rs.33, 509.46 million. The total profit after tax of this sector was Rs. 4,041.26 million.

WHY DO we need of an exchange?

To start a business, you need to invest capital. There are 3 primary ways to infuse the business with capital.

1) Transfer personal assets into the business (i.e. fund your own way)

2) Obtain loans

3) Sell equity in the business via stock (this requires incorporating the business).

If you do #3, there are two approaches. One is to sell shares privately. Small corporations do this to get cash from family and friends while giving them an equity position in the business. This may come in the form of dividends. Large ventures raise capital by putting themselves in the public market. The stock market is this public market that allows people to buy a stake in companies.

If we did not have a stock market, then many "big" ideas could not get funded.

The corporation gets the money raised on an IPO. They set the share value and hope that all shares released sell. Once shares are on the open market, then supply and demand along with perception of how well the corporation will do in the future will dictate price. The corporation may choose to distribute dividends, but not a large percentage does. The corporation does not make money on the exchange of shares. They only raise money if they release more shares (though that will drive down the overall price since they increased supply).

KSE SWOT Analysis

Strength: ·         Investing in Bonds ·         Holding large financial resources ·         Largest stock exchange of Pakistan. ·         Good competitive skills ·         Expert employees ·         Government support ·         Efficient functioning ·         Relations ·         Competitive advantages ·         Innovative	Opportunities: ·         Having mostly weak competitors ·         Customer trust ·         International scope ·         Fast market growth
Weakness: ·         Backward technology as compare to other stock exchange of world ·         Some time Operating problems ·         High employee cost ·         Dependent ·         Losses ·         Sub standard working conditions ·         Organizations flaws effect on it.	Threat: ·         Wrong Government polices ·         Economic crisis ·         Adverse demographic conditions ·         Mismanagement ·         Effect of globalization ·         Free market economy ·         Political instability ·         Inflation

Why List At KSE?

Source of Funds

·         Ability to tap a broader universe of investors as well as larger pool of investment capital.

·         More capital can be raised through additional stock offerings if sufficient investor interest exists.

·         In a tight monetary cycle, with high debt costs, equity markets are a more efficient and cost effective way for companies to get funded.

Flexibility of Use

• Hire new staff, expand existing operations or fund acquisitions.
• Use Listed Shares as “swaps” for acquisitions and mergers; this can accelerate domestic, regional and global growth strategies.
• Decreases a company’s reliance on raising funds on debt markets and reduces annual interest payments.
• Be able to attract and retain more highly qualified personnel if it can offer stock options, bonuses, or other incentives with a known market value, especially in a tight labor market.
• KSE is amongst the lowest listing and annual fees in the region.

Exit Strategy

• Existing shareholders can more easily sell their interests at retirement, for diversification, or for any other reason. A ready market always exists for a publicly listed company.

Profile Building

• More public attention due to more media interest.
• Coverage from Investment Analysts both domestically and internationally can provide the company with a greater profile and visibility.
• Ultimately, a more diversified group of investors will take an interest in the company, increasing demand for its shares thus raising its value.

Pakistan Mercantile Exchange

PMEX is regulated by Securities and Exchange Commission of Pakistan, Pakistan Mercantile Exchange-PMEX is the first and only technology driven, de-mutualized, on-line commodity futures exchange in Pakistan. PMEX -'s shareholders are National Bank of Pakistan, Karachi Stock Exchange, Lahore Stock Exchange, Islamabad Stock Exchange, Pak Kuwait Investment Company (Pvt.) Limited, and Zarai Taraqiati Bank Ltd.

The Membership of Pakistan Mercantile Exchange is open to all. Currently there are more than 300 members registered on the Exchange and the number is growing every month. The members include brokerage houses, individuals and industry specialists ranging from traders, exporters to commodity specialists.

Pakistan Mercantile Exchange was formed in 2002 and it formally became operational in May 2007 by launching the first product of Gold Futures Contract. This listing was followed by the first gold physical delivery in August of 2007. Additional Products were subsequently launched – IRRI -6 rice in March 2008 Palm Olien futures in June 2008 and KIBOR futures in Jan 2009. Crude Oil and Silver contracts were listed in Nov 2009.

Recently in April 2011, Pakistan Mercantile Exchange overtook the combined volumes of the Stock Exchanges. PMEX observed a record trading volume of Rs.68 billion in comparison to stock exchanges’ combined monthly trading volume of Rs.66 billion. The same trend continued in May 2011 whereby the PMEX posted a volume of RS. 73 billion trading in various listed commodities.

The Exchange recently increased its timings and now operates 21 hours. The increase trading hours has help investors in Pakistan to keep pace with the international market, investors in Pakistan get the opportunity to be a part of the global activity from a regulated platform where by the benefit from the commodity price trends and have the ability to hedge their trades. 

PMEX: The new investment frontier

All over the world, investors are increasingly interested in investment avenues such as precious metals, food grains and other energy resources. Extreme volatility and massive declines in stock markets are driving investors towards real assets and tradable commodities. In Pakistan too, those looking to invest their savings appear to be drifting away from the equities. Their focus seems to have shifted predominantly towards the Pakistan Mercantile Exchange (PMEX) where the average monthly trading value exceeded Rs50 billion for the first five months of this year. Trade in terms of value has shot up by 745 percent in Jan-May 2011 compared to the same period just one year back.

SECP official spokesperson Shakeel Chaudhary highlighted that "195,729 contracts (were) traded on the PMEX with a traded value of approximately Rs72.9 billion in May 2011 as compared to only 5,930 contracts traded with a value of Rs3.5 billion in May 2009". Brokers also highlight that at present, more investors are eager to diversify their investments towards non-traditional avenues. "A year ago almost all trading activity was concentrated in gold," contended Chaudhary adding that presently there are much "more widely distributed trading volumes being shared between gold, silver and crude oil futures contracts". The regulator has played its role effectively during this period in attracting the flow of funds towards PMEX. 

The two institutions have together introduced new contracts on the market, both for physical delivery and cash settlement. 
The number of brokers listed at PMEX has mushroomed and transactions are cheap, quick and transparent, thanks to sound regulation. Recently, contracts in sugar and international cotton have been added to the existing offerings in gold, silver, oil, rice, palm oil and Kibor. 

The SECP is now considering the introduction of contracts in wheat, maize and currency. The recent downgrading of US sovereign debt and fears that a similar fate may befall France soon has sent global equity markets into a spiral. Investors also appear to be moving away from currencies and promissory notes, towards gold and other commodities. Judging by global trends domestic investors can be expected to gravitate towards commodities. For this reason, both the PMEX and SECP will have their work cut out in terms of ensuring accountability, transparency and efficiency in the functioning of the exchange. 
Yesteryears have seen equities rise and fall in terms of popularity in the country. When the countries stock markets went bust in March 2007, restoring investor’s confidence became a long and arduous task. Both SECP and PMEX must continue to work with brokers and other stakeholders to ensure that a similar tragedy does not preclude the flight of this phoenix.

 

BENEFIT OF TRADING WITH PMEX

·         Only recognized platform for future trading under the law

·         Regulated by SECP

·         Guaranteed Settlement

·         No Credit Risk

·         Segregation of funds

·         Minimal margin requirement

·         Direct market access /Ease of trading

·         Profit on margin account balance

COMMODITIES TRADED:

·         Gold

·         Silver

·         Crude oil

·         Palm Olien

·         Rice

·         Sugar

·         Wheat

Upcoming Products:

·         Maize

Current Product Profile PMEX:

Metals Cash settled	100 gram Gold Contract Kilo Gold Contract 50 & 100 Tola Gold 1oz, 10oz & 100 Oz Gold US $ denominated 10oz, 100oz & 500 oz Silver US $ denominated
Physical	Mini Gold Contract One Tola Gold Contract
Energy	Crude Oil 100 barrel US $ denominated Crude Oil 10 barrel US $ denominated
Agricultural	IRRI-6 Rice Futures Contract Weekly IRRI-6 Futures Contract Palm Olein Futures Contract Sugar Wheat
Financial	KIBOR Futures Contract

Products in Pipeline

• NY Cotton – 2011
• Silver – Physical
• Crude Palm Oil
• Currency Futures – with SECP for Approval

Currency Future Contract:

Gold 100 gm Futures Contract	100 gms (approx. value Rs 537,190) Quotation Rs./10 gms Margin 3.25% (approx. Rs. 17,500) 1,2,3 Month Expiries Settlement: Cash Settlement Hours: 5 am to 2 am next morning T+0 Settlement ( daily MTM)
Kilo Gold Futures Contract	1.03 Kgs  (approx. value Rs 5,371,900) Quotation Rs./10 gms Margin 3.25% (approx. Rs. 179,900) 1,2,3 Month Expiries Settlement: Cash Settlement Hours: 5 am to 2 am next morning T+0 Settlement
Gold 1oz Futures Contract	Contract Size : 1oz(approx. value $1747 =Rs 166,699) as on October 17, 2012) Quotation: US $/oz Profit / Loss paid in Pak rupees Margin 3.25% (approx. Rs.5,500) 1,2,3 Month Expiries Settlement: Cash Settlement Hours: 5 am to 2 am next morning T+0 Settlement ( daily MTM)
Gold 100oz Futures Contract	Contract Size : 100oz(approx. value $174,700 =Rs 16,669,874) Quotation: US $/oz Profit / Loss paid in Pak rupees Margin 3.25% (approx. Rs. 542,100) 1,2,3 Month Expiries Settlement: Cash Settlement Hours: 5 am to 2 am next morning T+0 Settlement ( daily MTM)
Crude Oil Futures Contract	Contract Size : 100 barrel (approx Value US$ 9,227=Rs.880,440) Quotation: US $/ Barrel Profit / Loss paid in Pak rupees Margin 4.5% ( Rs.39,600) 1,2,3 Month Expiries Settlement: Cash Settlement Hours: 5 am to 2 am next morning T+0 Settlement ( daily MTM)
Silver Futures Contract	Contract Size : 500 Ounces (approx Value US$ 16,510=Rs. 1,575,384) Quotation: US $/ Per oz up to 3 decimal places Profit / Loss paid in Pak rupees Margin 5.75% (Approx Rs.90,500) 1,2,3 Month Expiries Settlement: Cash Settlement Hours: 5 am to 2 am next morning T+0 Settlement ( daily MTM)
Mini Gold Futures Contract	10 gms (approx. value Rs 54,920) Quotation Rs./10 gms Margin 25% Buyers, 100% sellers From 1 to 7 day Expiries Delivery Mode: Compulsory Delivery Hours: 5 am to 2 pm T+0 Settlement, Electronic De-mat Credits Exchange Provides Depository and Custody, Fully Insured Physical Withdrawal and Re-deposit LBMA Approved Refiners 999.9 Fineness, Pure Gold Unique Identification Number Tamper-Proof Packaging Independent Swiss Govt. Certification Internationally acceptable PAMP, largest Swiss refinery
One Tola Gold Futures Contract	One Tola (approx. value Rs 63,984) Quotation Rs./Tola Margin 25% Buyers, 100% sellers From 7 day Expiries Delivery Mode: Compulsory Delivery Hours: 5 am to 2 am T+0 Settlement, Electronic De-mat Credits Exchange Provides Depository and Custody, Fully Insured Physical Withdrawal 10 Tola Bars or multiples thereof
Rice IRRI-6 Futures Contract	25 Tonnes (approx. value Rs 850,500) Quotation Rs./100 Kgs Margin 5.00% (approx. Rs. 42,600) Mar , Apr , May Expiries Delivery Mode: Physical Delivery under Seller’s Right, otherwise Cash Settlement Delivery centre is Karachi Hours: 10 am to 5 pm T+0 Settlement
Wheat Futures Contract	10 Metric Tonnes (approx. value Rs 270,100) Quotation Rs./100 Kgs Margin 10.00% (approx. Rs. 27,100) Mar , Apr , May Expiries Delivery Mode: Compulsory delivery for all open positions on expiry Currently delivery centre is Karachi Hours: 10 am to 6 pm T+0 Settlement
Sugar Futures Contract	10 Tonnes Quotation Rs./1 Kgs (Exclusive of all taxes) Margin 10.00% (approx. Rs. 46,400) Up to three months expiry contracts are listed Delivery Mode: Compulsory Physical Delivery for all open positions on expiry Delivery center is Karachi, however delivery can also be made through Ex mill DO Hours: 10 am to 7 pm Daily mark to market

COMMODITY MARKET INFRASTRUCTURE IN PAKISTAN

·         Agriculture Markets are the domain of States/Provinces

·         450+ large and small spot markets in towns and cities across the country

·         Some form of informal forward trading in certain commodities

·         Strong role of traditional middleman at village/farm-gate level

·         Main provider of financing to small and medium sized farmers

·         Very high interest rates

·         No holding power/storage due to inefficient infrastructure and lack of alternative sources of financing

·         Seasonal and cyclical volatility is further aggravated by lack of sufficient trading and financing markets

·         Lack of information due to unorganized markets leads also leads to greater price volatility

·         Government involvement in procurement and minimum support price

NEED FOR FUTURES EXCHANGE IN PAKISTAN

·         Fragmented markets

·         Inefficient costs in value chain

·         Price discrepancy between locations and counterparties

·         Reneging on deals. Frequent defaults on payments and deliveries

·         Elimination of counterparty credit risk

·         Forward hedging; price risk management

·         Price discovery. Price signals going out into the future. Collective market expectations

·         Planning for future: to sow or not to sow; what to sow

·         Documentation of transaction data

·         Moving away from just living in the present to planning for the future

·         Policymakers can be proactive instead of just being reactive

·         As essential institution for efficient commodity financing, collateral management & warehouse receipt trading

EXISTING BROKER REGISTRATION

The Broker and Agents Registration Rules (the ‘Rules’) were notified on May 10, 2001. The said Rules set out the eligibility criteria for registration of brokers and agents with the Commission, suspension and cancellation of registration of individual brokers and agents as well as code of conduct to be followed by the registered brokers. No amendment has been made in the Rules since their notification in the year 2001.

EXISTING LEGAL FRAMEWORK OF RGISTRATION

Securities and Exchange Commission of Pakistan Act, 1997 and Securities and Exchange

Ordinance, 1969 provide enabling clauses under which rules have been notified containing the provisions relating to registration criteria for brokers and agents; their ongoing compliance requirements and provisions relating to maintenance of books of accounts etc. These provisions are scattered in various set of rules notified by the Commission from time to time. Tabular presentation of the existing legal framework is as under:-

KSE Data Analysis

Top 10 sector of KSE

Market Analysis of % years KSE

5 Years Progress Analysis

In millions except companies, index and bonds data

YTD = Year to date

1. The KSE 100 ^TM Index was introduced in November, 1991
2. The KSE All Share Index was introduced in September, 1995.
3. Listed companies reflected in the relevant year have been stated after 6 companies delisted in 2006, 7 in 2007, 6 in 2008, 2 in 2009, 8 in 2010 and 8 in 2011 and merger of 14 companies in 2006, 4 in 2007, 4 in 2008, 4 in 2009 and 5 in 2010.

5 YEARS PROGRESS 2008-2012
	Upto 31-12-2008	Upto 31-12-2009	Upto 31-12-2010	Upto 30-12-2011	Upto 18-12-2012
Total No. of Listed Companies	653	651	644	638	573
Total Listed Capital - Rs.	750,477.55	814,478.74	919,161.26	1,048,443.87	1,087,212.29
Total Market Capitalisation - Rs.	1,858,698.90	2,705,879.83	3,268,948.59	2,945,784.51	4,224,446.74
KSE-100TM Index	5865.01	9386.92	12022.46	11347.66	16858.68
KSE-30TM Index	5485.33	9849.92	11588.24	10179.03	13680.85
KSE All Share Index	4400.76	6665.55	8359.31	7856.82	11916.77
New Companies Listed during the year	10	4	6	4	4
Listed Capital of New Companies - Rs.	15,312.12	8,755.73	33,438.45	16,010.82	6,275.12
New Debt Instruments Listed during the year	7	1	4	6	1
Listed Capital of New Debt Instruments - Rs.	26,500.00	3,000.00	5,650.18	14,754.80	2,000.00
Average Daily Turnover - Shares in million	146.55	179.88	132.64	96.91	198.19
Average value of daily turnover - Rs.	14,228.35	7,450.75	4,405.20	3,506.22	4,714.33
Average Daily Turnover (FutureTM) YTD	30.76	1.03	4.58	5.78	12.94
Average Value of Daily Turnover – YTD	5,229.97	89.66	396.90	611.92	859.81
Foreign Investment in Securities Market
Inflow – Rs	-	-	-	-	-
Outflow – Rs	-	-	-	-	-
Net Inflow/(Outflow) – Rs	-	-	-	-	-

 

PMEX Analysis

GROWTH IN TRADED CONTRACTS

1000% Growth in PMEX Volumes during 1st Quarter 2011

Volumes at Pakistan Mercantile Exchange Limited (formerly National Commodity Exchange Limited) reached another record over the first quarter of 2011. March alone saw the traded value crossing the Rs. 50bn monthly mark for the first time. The overall first quarter volume saw a 1026% increase in terms of value traded over the same period last year and a 62% increase over the previous quarter.

Growth in trading volumes was accompanied by growing product diversification. While a year ago almost all the trading was in gold, last quarter’s activity was spread over Gold (55%), Silver (20%) and Crude Oil (25%). This represents the increasing interest of investors as well as the rapidly increasing expertise of commodity brokers. “We are very encouraged with the continuing growth on the Exchange and are optimistic for the coming months as our brokers continue to increase their coverage and focus on various new commodities” said PMEX Managing Director Samir Ahmed.

PMEX increased its operational timings last month and is now open almost around the clock with trading in Gold, Silver and Crude Oil available from 5.00am to 2.00am the next day. The Exchange also lists IRRI-6 Rice, Palm Olien and KIBOR Futures. During 2011 it also expects to list Sugar, Wheat, Maize, Basmati Rice and Currency Futures.

Pakistan Mercantile Exchange recently changed its name from National Commodity Exchange to better reflect its broad mandate and scope of activity to trade all types of futures contracts. PMEX started its operations in May 2007 as a fully electronic exchange with nationwide reach. It is Pakistan’s first and only de-mutualized exchange with 100% institutional shareholding. It is licensed and regulated by the Securities and Exchange Commission of Pakistan.

Pakistan Mercantile Exchange Announces 671 % Growth Year on Year

Pakistan Mercantile Exchange Limited (PMEX), the country’s first and only demutualized commodity Futures Company, today announced an increase of 671 % from last year. In terms of volume this amounts to Rs 490,515,367,875 in 2010-2011 versus Rs 63,610,332,963 last financial year. The increase in terms of number of lots 1,475,582 were also remarkable and stood at a 365% growth over the same period.

PMEX has been growing consistently over the entire year and during the last quarter the total traded value was Rs 211,340,279,318 ahead of the country’s three leading stock exchanges, KSE at a volume of Rs 189,139,444,428; LSE at Rs 3,425,438,718 and the ISE at Rs 138,604,723 respectively. PMEX has now joined the league of leading stock exchanges having gained confidence of the investors as a trading platform for hedging and for an alternative asset class.

The phenomenal growth has been a result of newer products, low transaction costs, tight spreads, deep liquidity, growing membership and efficient systems of PMEX that make it very easy for brokers and their clients to transact and manage their trades.

Pakistan Mercantile Exchange, changed its name in March 2011 from National Commodity Exchange to broaden its scope of activity, is now open almost round the clock and growing at a rapid pace with the trading in Gold, Silver and Crude Oil available from 5.00am to 2.00am. “The name change has been decided with a view to communicating more accurately our mandate as a nation wide commodities and futures exchange. The new name also reflects more accurately the wide variety of our current and planned business lines and products,” said Mr. Samir Ahmed in the press communiqué

Being sensitive to investor needs PMEX launched smaller size contracts in Silver and Crude oil in June 2011. Silver Futures is now available in 100 oz along with the existing 500 ounce lot size whereas Crude oil is available for trading in 10 barrel lot size along with the existing 100 barrel lot. The company now has a complete range available for small, medium and large investors to invest in Gold, Silver and Crude Oil futures’ contracts.

Additionally, PMEX also has plans to launch some main Agri futures products in 2011. Recently, the sugar contract which was launched in June 2011 is now available for trading on the Exchange. This listing offers industrial consumers of sugar the option to purchase sugar on the exchange and hedge against price changes. Wheat and Maize contracts are also in the process of being finalized.

Pakistan Mercantile Exchange Annual Results 2011

The Board Members of Pakistan Mercantile Exchange (formerly National Commodity Exchange) met to review and approve financial accounts of the year 2010‐2011 and the plans for the next five years here at the head office of the Exchange.

During 2010‐11, the traded volumes at the Exchange increased to Rs. 490 bn from Rs. 63 bn in the previous year, a growth of 671 %. The number of new investors grew 245 % during the year as 20 new brokers initiated their business at the exchange and added on new clients. This was a strong signal that more and more investors are entering the Commodity Market for diversifying their investment portfolios and hedging against the uncertainties of the traditional investment markets and the consistently low returns offered by the existing traditional asset classes.

During 2010‐11 PMEX successfully placed a Preference Share issue, which was subscribed by the National Bank of Pakistan and Pak Brunei Investment Company. The fact that the shares were taken up by two leading Financial Institutions of the Country serves as a strong vote of confidence that PMEX is on its way to sustained growth and reinforces the fact that PMEX is the fast growing Exchange of the Country. The other shareholders of PMEX include Pak Kuwait Investment Co, Zarai Taraqiati Bank and the three stock exchanges of the country.

Over the last several years PMEX has established a strong footprint in managing and offering international commodities in the Pakistan market ‐ especially gold, silver and crude oil. This trend is expected to continue with the introduction of new products in the coming years.

In the next five years PMEX will also focus on the Agricultural Market development. The main objective will be to initially list all the major domestic agricultural products on the Exchange. This will be followed by an extensive marketing plan to create awareness of the immense benefits that an active futures market offers for the growers and traders and users of
agricuotural commodities in Pakistan. This is going to be a major challenge for PMEX as it requires creating awareness of new products and practices to traditional markets. The intention is to follow best international practices in terms of transparency, fairness and open access so that all players in the value chain benefit equally.

In order to achieve the objectives set out, PMEX is planning to open offices near the majo agricultural zones of the country for easy access and trust building to take place between the Exchange and the agricultural stake holders. The initial plan is to open 4 offices during 2012 in the approved areas.

PMEX will continue to follow the tight risk management procedures and controls that it has pioneered in Pakistan and that have stood it in good stead, especially in recent times of immense volatility in the international markets.

PMEX posts highest ever trading volume

Pakistan Mercantile Exchange Limited achieved the highest ever monthly trading volume of PKR 129 billion in the month of August 2012 with a total of 325,000 contracts traded. This is a record increase, crossing the previous high of June 2012 of PKR 119 billion. 

Discussing the achievement, Mr. Samir Ahmed, Managing Director PMEX, added that “This volume record is a testament to the fact that the market continues to grow at a fast pace. It also gives us the assurance that an increasing number of Pakistani investors are accepting commodities as an alternative asset class for portfolio diversification.” 

Volumes at PMEX have since 2011 continued to exceed the combined trading volumes for all three stock exchanges. For the latest 3 month period, June to August, total PMEX volumes were Rs 352 bn compared to Rs 214 bn for the stock exchanges. 

Furthermore PMEX is showing continuous improvement and diversification in its product mix. Mr Mansoor Ali, Chief Business Officer at PMEX commented “Our product mix has been growing for quite some time now as investors become aware of and familiar with different products. While Gold has been the dominant product since the initial days, improvement in Crude Oil trading has been witnessed as it took a market share of 39% in the overall product mix of PMEX increasing from Rs 8.2 bn in August 2011 to Rs 47 Bn in Aug 2012”. This reinforces the view that Investors are trading crude oil as an Instrument for hedging their fuel bills.

PMEX will continue to follow the tight risk management procedures and controls that it has pioneered in Pakistan and that have stood it in good stead, especially in recent times of immense volatility in the international markets.

Commodity Trading

Reasons for the Rise in the Price of Gold

·         SAFE HAVEN – The global economic crises  and uncertainty going forward has led to money flow into gold

·         MONEY SUPPLY – Printing of money not only in the US, but around the world

·         DOLLAR – Dollar movement has been erratic

·         CENTRAL BANKS – Uptick in central bank purchases

·         INTEREST RATE – Low Interest Rate environment

·         ACCESS TO GOLD – Investors have easier access to investing/trading gold via ETFs, Hedge Funds, and Mutual Funds.

Pakistan Stock’s VS PMEX Analysis

CHALLENGES:

·         Market awareness and education

·         Inefficient spot markets

·         Resistance from incumbent lobbies and vested interests

·         Documentation of economy

·         Competition with traditional markets and unregulated trading houses/ exchanges

·         Tax and accounting treatment of futures trading for hedging and speculation

·         Participation of public sector through exchange for procurement and price stabilisation policies

CONCLUSION

The risk-averse investors and the central banks across the globe as well as in Pakistan have rushed to safe heavens like commodity markets as the global debt crisis originating from the United States and Europe seems to have set its course towards, what some economists believe, another double-dip recession.

Whereas the investors’ confidence is badly shaken at the now volatile stock markets across the globe including that of Pakistan, the commodity market in the terrorism-hit country witnessed. The day saw trading volumes at the country’s first and only de-mutualised market climbing record 7,289,657,950 on the back of what the observers at Pakistan Mercantile Exchange (PMEX) said profit-conscious investors’ desire for reaping fruit of the present upside rally in gold.

The concerns for a deepening European debt crisis and a possible distress among the European banks, like that of France, helped propel gold prices to a record $1,813.79 an ounce in Asian markets. This is an indication that more and more investors are including commodities, mainly gold in their investment portfolios.  According to PMEX data, the trading in gold, silver, crude oil and mini gold remained robust at the local commodity market. The Exchange recorded total trading lots in the listed commodities at 28,589. The trading volumes for gold, silver, crude oil and minigold, respectively, stood at 6,564,947,725, 340,658,166, 383,787,059 and 265,000. Whereas the lots traded in gold, silver and crude oil were counted at 24,981, 502 and 3,101, respectively, according to PMEX data.

Raeda Latif, a commodity market analyst observed, was that low interest rates were supposed to prevail for the next two years, till 2013, which again tended to favour commodity markets as a growing potential investment avenue. PMEX’s weekly summary of daily trade volumes shows that during the current week the trading activity stood at 7,289,657,950 against last week’s 4,698,787,533 with volumes for gold jumping to 6,564,947,725 from 4,100,928,606 during the week under review. “Gold and other commodities are offering investors with an option of investing in non yielding assets at a low opportunity cost,” Raeda said. On the other hand, volumes at local equity market, the Karachi Stock Exchange (KSE), are hitting a new record of a head-on dip with analysts terming post-recovery gains as unsustainable.   Last trading day of the week, saw volumes at KSE standing at a meager 39.77 million shares despite a rallying benchmark, KSE-100 share index, that closed 25 points lower at 11,239.78. 

 The analyst said despite an air-pocket opening in various high priced stocks on Friday, the sellers stayed cued up at the market rates.

“I would term it quite logical for investors to turn in this direction as an attempt to not only safeguard their portfolios but also diversify to get better returns,” viewed Raeda Latif, a commodity market analyst. Attributing the ongoing shift of investment to the existing global situation, the analyst said that since the prices on the exchange were real time international prices one could see it as an adequate reflection of what was happening in the global economic scenario and its impact on the commodity markets worldwide. “There is a severe crisis of investors’ confidence globally and that leaves very few avenues to turn to. Due to the status of gold as a store of value and a safe haven, investors are preferring to divert their investment to these commodities,” she said. Raeda opined that central banks had been significant buyers in the last two years in their quest for diversifying their reserves out of the dollar. Furthermore, she said, large organizations and institutions were also seen opting for gold investment along with central banks and individual investors. “In the previous decade the central banks were sellers every year but now that supply overhang is gone,” she said adding “all these factors favour gold.”