The Karachi Stock Exchange (KSE) has earmarked several challenges for the new year, including demutualization, new derivatives, introduction of free-float index and increasing the investor base and improvement in corporate governance.
The Annual Report of KSE was released on Monday and Yasin Lakhani, chairman of the exchange, in his review said that members'' committee on demutualization/integration comprising elected directors and some senior members made strenuous efforts during the whole year in identifying the relevant issues and studying the international models.
A preliminary report along with valuation report on the net worth of the exchange was submitted to SECP in the beginning of the first quarter of the fiscal year. Subsequently, as required by the Commission, a business plan of the exchange is in the process of development and after submission of the same, discussion with the SECP would be held on the matter.
Introduction of new derivative products, in line with the international practices, such as index futures options, etc, are under consideration. Study tour to Malaysia by a KSE team to examine the derivatives market was made recently.
These products would enable investors to invest in securities through leveraged products, as well these would perform as risk management tools. In addition to that, futures contracts with multiple duration of 30, 60 and 90 days with options of cash settlement along with deliverables are also in process of consideration.
The chairman''s review said that in order to be more market-reflective, a new sensitive index, based on free-float methodology, is being planned and would be introduced shortly.
This would be initially in addition to two indices being maintained currently by KSE, ie KSE-100 index and KSE All Share Index. Globally, the free-float methodology of index construction is considered to be an industry-best practice.
"With more large issues to come for listing for raising financial resources from the capital market, it is expected that the size of the market in terms of volume and market capitalisation would increase further, thus attracting both local and foreign portfolio investments in the country", the report said.
Yacoob Memon, managing director of KSE, said that better marco-economic indicators, sustained easing of Indo-Pak relations, privatisation of the state-owned companies and outstanding corporate results were the main reasons for the growth in the market during FY2005.
In financial year 2004-05, record 15 listings worth Rs 26.06 billion were made at KSE. In the period under review, Pakistan Petroleum Ltd, Kot Addu Power and United Bank Ltd, whose shares were offered through the Privatisation Commission, got listed at the local bourses.
The managing director said despite the March 2005 crisis, the KSE stood out the ''best performing stock market'' among some of the top global equity markets as per the recent analysis based on previous eight months'' period January-to-August 2005. During this period, the index saw steep rise of 25.4 percent which was way ahead of the second best, Mumbai Stock Exchange''s BSE-30 index, which gained 30 percent.
A major breakthrough during the year was commencement of pre-trade verification system at the exchange from September 12, 2005. The system, known as ''Exposure Monitoring System'' (EMS), has been introduced with the aim to ensure that on a real time basis, members'' capital adequacy requirements are complied besides required deposits against exposure and market-to-market losses are kept with the exchange.
Memon said in the report that the KSE is determined to remain one of the growing institutions not only within the country but globally as well.
The future projects include introduction of new derivative products in line with international standards such as index futures, options etc, promoting margin financing, cross border listings, investors education and enhancing their awareness and reform process to be strengthened further.