The stock exchange provides a market place where shares can be bought and sold.
2. What is the Role of the Stock
The stock exchange admits companies for trading at their securities. It provides a market for
raising capital by companies. It provides a market place for shares of listed public companies
to be bought and sold, by bringing companies and investors together at one place. The exchange’s
role is to monitor the market to ensure that it is working efficiently, fairly and
3. How Many Stock Exchanges in
There are three stock exchanges in Pakistan: Karachi Stock Exchange (Guarantee) Ltd. Lahore Stock
Exchange (Guarantee) Ltd. Islamabad Stock Exchange (Guarantee) Ltd. Of these, Karachi Stock
Exchange is the biggest exchange in the country.
4. What is Trading and Settlement?
The stock exchanges have introduced a computerized trading system to provide a fair, transparent,
efficient and cost effective market mechanism to facilitate the investors. The trading system
comprises of four distinct segments, which are, 1.T+3 Settlement System; 2.Provisionally Listed
Counter; 3.Spot Transactions; and 4.Futures Contracts. a:-
5. What is T+3 Settlement System?
In the T+3 settlement system, purchase and sale of securities is netted and the balance is
settled on the third day following the day of trade.
6. What are the Benefits of T+3 Settlement
It reduces the time between execution and settlement of trades, which in turn reduces the market
risk.It reduces settlement risk, as the settlement cycle is shorter.
7. What is Provisionally Listed
The shares of companies, which make a minimum public offering of Rs.100 million, are traded on
this segment from the date of publication of offering documents When the company completes the
process of dispatch/credit of allotted shares to subscribers, through CDC it is officially
listed and placed on the T+3 counter. Trading on the provisionally listed counter then comes to
an end and all the outstanding transactions are transferred to the T+3 counter with effect from
the date of official listing.
8. What are Spot/T+1 Transactions?
Spot transactions imply delivery upon payment. Normally in spot transactions the trade is settled
within 24 hours.
9. What is Futures Contract?
A Futures contract involves purchase and sale of a financial or tangible asset at some future
date, at a price fixed today.
10. What are shares?
Each share represents a small stake in the equity of a company. You can buy large or small lots
to match the amount of money you want to invest. A company’s share price can rise or fall as a
result of its own performance or market conditions. Once the shares are brought and transferred
in your name your name will be entered in the company’s share register, which will entitle you
to receive all the benefits of share ownership including the rights to receive dividends, to
vote at the company’s general meetings to receive the company’s reports. If you decide to sell
your shares you will need to deliver share certificates to the broker in time for the
transaction to be completed. With the introduction of the Central Depository System (CDS), an
investor can have shares in paper form or can own shares in an electronic book- entry form at
the Central Depository Company (CDC).
11. Why Do Companies Issue Shares?
Companies issue shares to raise money from investors. This money is used for the development and
growth of businesses of companies. A Company can issue different types of shares such as
ordinary shares, preference shares, shares without voting rights or any other shares as are
permissible under the law. These give shareholders a stake in the company’s equity as well as a
share in its profits, in the form of dividends, and a voting right at general meetings of
12. Why Do Investors Buy Shares?
Studies have shown that over a twenty-year span, investment in shares has provided greater
returns than most other forms of savings. Shares can provide you with a regular stream of income
through dividends as well as the potential for your investments to grow in value. If the prices
of shares go up, you can sell them for more than you paid. This is called capital gain.
13. What are Dividends?
Dividends are returns paid to shareholders out of the profits of the company. Returns can be in
the form of cash or additional shares of the company called bonus shares. Dividends are usually
paid once or twice a year depending upon the company’s profit distribution policy.
14. What is Capital Growth?
This is one of the ways in which shares differ from deposit accounts. The principal amount of
money you put in a bank or any fixed income savings scheme always stays the same e.g. if you
start with Rs.100,000 you will always have Rs.100,000 (other than any interest earned). changes
in value according to the performance of the company. With good management, the value of your
investment in shares of a company can grow over time so that your shares are worth more than you
paid for them. This is capital growth.
15. What are Risks And Rewards?
Buying shares can offer advantages over saving in deposit accounts: your investment may increase
in value besides paying you dividends. 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. Investment in shares is therefore investment in ‘risk capital’. The shareholders can be
rewarded for taking this risk and the potential return on your money can be higher than that on
other investments. You can reduce your risks with careful planning.