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WHAT IS STO CKEXCHANGE?

Stock exchange is place where buyers and sellers meet and decide on a price ofstocks. The purpose of a stock market is to facilitate the exchange of securitiesbetween buyers and sellers, reducing the risks of investing. In Pakistan three

Stock Exchanges are working;Karachi Stock Exchange (Guarantee) Ltd.Lahore Stock Exchange (Guarantee) Ltd.Islamabad Stock Exchange (Guarantee) Ltd.The stock exchange plays the following roles;

The stock exchange admits companies for trading at theirsecurities.It provides a market for raising capital by companies.

It provides a market place for shares of listed public companiesto be bought and sold, by bringing companies and investorstogether at one place.The exchange's role is to monitor the market to ensure that it isworking efficiently, fairly and transparently.WHAT IS INDEX?

Everyday in business news it is heard that KSE 100 Index or LSE 25 Indexincreased or decreased by some points. Index shows the trade of shares of topcompanies in the market. In Karachi Stock Exchange 100 index shows the tradeof shares of top 100 companies in the market. Lahore stock exchange indexshows the top 25 companies shares.HOW SHARES ARE TRADED?

If an investor wants to purchase the shares of a particular company, he has toopen an account with the Broker in the Stock Exchange. On the other hand thebroker has the account and registered with the Stock Exchange. The registrationfee is Rs.4 Million and broker is allowed to trade up to 25 times of his NetCapital. Investor can order in two ways,

Limit Orders: In a limit order, the investor or client suggest the price atwhich the order is to be executed.

TRADING AND SETTLEMENT SYSTEM:

The stock exchanges have introduced a computerized trading system to providea fair, transparent, efficient and cost effective market mechanism to facilitate the

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investors. Before this system stocks were traded physically by bidding in theopen hall which was very slow system. In Pakistan LSE is the first to introduceIT trading system, in which softwareULTRA is used.

Ask PriceBid PriceName of

Company

No. of

Shares

Price Per

Share

No. ofShares

Price per

Share

Situation

OAGRA

1000

80

100075

Not

Traded

800

78

800

78

Traded

The trading system comprises of four distinct segments, which are:

T+3 Settlement System;Provisionally Listed Counter;Spot Transactions; andFutures Contracts.T+3 SETTLEMENT SYSTEM:

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In the T+3 settlement system, purchase and sale of securities is netted and thebalance is settled on the third day following the day of trade. It reduces the timebetween execution and settlement of trades, which in turn reduces the marketrisk. It reduces settlement risk, as the settlement cycle is shorter.

PROVISIONALLY LISTED COUNTER:

The shares of companies, which make a minimum public offering of Rs.100million, are traded on this segment from the date of publication of offeringdocuments When the company completes the process of dispatch/credit ofallotted shares to subscribers, through CDC it is officially listed and placed onthe T+3 counter. Trading on the provisionally listed counter then comes to anend and all the outstanding transactions are transferred to the T+3 counter witheffect from the date of official listing.SPOT/T+1 TRANSACTIONS:Spot transactions imply delivery upon payment. Normally in spot

transactions the trade is settled within 24 hours.FUTURE CONTRACT:

A Futures contract involves purchase and sale of a financial or tangible

asset

at some future date, at a price fixed today.HOWPRICE OF STOCK DETERMINED?

At the most fundamental level, supply and demand in the marketdetermines stock price.

Price times the number of shares outstanding (market capitalization) is the valueof a company. Comparing just the share price of two companies is meaningless.Theoretically, earnings are what affect investors' valuation of a company, butthere are other indicators that investors use to predict stock price. Remember, itis investors' sentiments, attitudes and expectations that ultimately affect stockprices.There are many theories that try to explain the way stock prices move the waythey do. Unfortunately, there is no one theory that can explain everything.