The Stock Exchange is a place where shares of listed companies are bought and sold. Companies list themselves on the stock exchange to raise capital. Shares of companies are traded, after they are listed, through a process of Initial Public Offering (IPO) or Secondary Public Offering (SPO). The share purchase represents ownership of the shareholder in a company to the extent of amount contributed by the investor to the capital of that company.

Corporate Bonds (Term Finance Certificates - TFCs etc.) and Government Debt Securities - GDS (Treasury Bills etc.) are also listed and traded on the Stock Exchange. Bonds are listed by a company that wants to raise capital in return for fixed periodic payments as mark-up and the eventual return of principal to the investor. GDS are listed by the Government to raise capital whereby the securities give fixed periodic returns as profit with eventual return of principal to the investor.

A company floats its shares for the first time through an IPO in the share market. These shares can be purchased by filling and submitting the share subscription form along with the payment of subscription amount through cheque (or through any other instrument of payment recommended by the issuer company) at a branch of the designated bank(s). The shares are subscribed at a pre-designated price. In an SPO, shares are offered by a listed company by way of issuing new shares, called Right Shares, or through off-loading of more shares (held by directors and others) in the market. The share price is set on the stock exchange platform as the shares are bought and sold.

Pakistan Stock Exchange (PSX) has 558 listed companies distributed amongst 40 sectors. There are 7 Indices listed on PSX board. Part of the PSX ecosystem are the CDC (Central Depository Company) through which delivery of shares takes place, and NCCPL (National Clearing Company of Pakistan Limited) through which settlement of shares takes place.

Potential Investors are advised to contact a TREC (Trading Rights Entitlement Certificate) holder/ licensed brokerage firm for their account opening and trading on the Stock Exchange.

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  • Primary market/ IPO – Dos: A (prospective) investor must read the Prospectus/ Abridged Prospectus issued against an IPO carefully and note the following:

    • Risk factors pertaining to the issue.
    • Financials of the issuer.
    • Object of the issue.
    • Outstanding litigations & defaults, if any.
    • Business overview.
    • Background of promoters.
    • Instructions before making application.
  • Primary market/ IPO – Don’ts:

    • Do not fall prey to market rumours.
    • Do not go by any implicit/ explicit promise made by anyone.
    • Do not invest simply based on the bullish trend of the market industry/ issuer company.
    • Do not bank on the price of the shares of the issuer company going up in the short run.
    • Do not invest just because others are doing it also.
    • Do not invest just because the issuer company has a good reputation. Study the details behind the issue.
  • Secondary Market– Dos:

    • Transact only through Stock Exchange.
    • Deal only through registered brokers/ TREC holders of PSX with valid license for brokerage issued by SECP.
    • Complete all account opening formalities properly
    • Read & properly understand the risk associated with investing in securities before investing.
    • Assess the risk-return profile of the investment as well as the liquidity & safety aspects before investing.
    • Invest based on sound reasoning, taking into account all publicly available information.
  • Secondary Market – Don’ts:

    • Given the benefits of trading on the Stock Exchange, it is advisable to avoid off-market transactions.
    • Don’t deal with unregistered intermediaries.
    • Don’t fall prey to promises of unrealistic returns.
    • Don’t invest on the basis of hearsay & rumours; verify before investment.
    • Don’t forget to take note of risks involved in the investment.
    • If new to share trading, it is strongly recommended that (prospective) investor obtain proper professional investment advice before investing in shares.
  • Take responsibility for investment decisions:

    • Know your financial capacity and needs well. Stock prices keep falling and rising. Losing money in a stock trade is not your broker’s responsibility. Stand by your decisions.
    • Avoid discretionary trading accounts whereby the brokerage firm is given the freedom to execute trades for you.

Following are some of the important considerations before investing in the stock market:

Investment basics:

  • Diversify Your Investment: The best way to minimise risk is to diversify your investments across various investment products. If equities are your sole investments, it makes sense to diversify between different sectors and companies. In this way, loss incurred on some investments can be absorbed or compensated by gains made in others.

  • Understand Your Risk Profile: As an investor, you must choose between how much risk you can take as all investments carry a certain amount of risk. Consider an investment product not only according to your requirements and how much capital you can invest, but also according to your tolerance of risk. Depending on how ‘risk averse’ or ‘risk-prone’ an investor you are, you may choose an investment accordingly.

  • Do Your Homework before you Invest: To invest well, you must gather and understand all relevant information regarding the investment you are going to make. This includes studying companies’ annual reports, accounts and other statements while keeping abreast of what is happening in the said sector or industry. Consult your investment adviser/ stockbroker to get the latest market information about shares you wish to buy or sell. Do not buy into rumours or be pressured by anyone’s grave but unfounded recommendations before making an investment decision.

  • Think Long Term: Investment in shares does not necessarily result in instant yields. Do not invest any money which you may need immediately, since the price of shares can go up and down. Studies have shown that investments properly timed and based on strong fundamentals have been proved to be very profitable for investors in the longer term.

  • Judgement of Timing: The aim of investing in stocks and shares is to buy at low and sell at high. Knowing when, however, is the challenge. While it is not easy to time the market, investors should try their best to buy when the upswing has begun, and sell as the downswing starts.

  • Avoid Herd Mentality: The stock market is driven by two emotions: greed & fear. People are usually caught up in the boom hype and pay beyond the worth of shares. This is the greed that drives bull markets. Don’t allow greed to become your need. In bear markets, people get carried away with the ruling pessimism and are eager to sell their investments believing in the worst rumours. This is the fear that dominates bear markets.

  • Beware of Scams Beware of promises of quick profits or sky high returns. Investors must bear in mind that higher the gain on investments, higher is the risk involved. This is the fundamental risk/ reward trade-off.

  • Keep an Eye on Stocks’ Performance: Investors must keep an eye on the performance of stocks. They can do so through newspapers, digital media, investment magazines, brokerage firms’ research articles or through other media. A company’s stock performance can take a boost or downturn based on some fundamental changes in the company such as a structural or financial reform. Similiarly, a company can face seasonal or circumstantial boom resulting in better stock performance. Also, unfair trading practices by market participants in the form of cornering, insider trading, front running, blank selling etc. can cause sudden change in stock performance of a company even though its stock may be inactive or illiquid.

  • Taxes & Commissions: As an investor, you must know the rates of taxes and commissions charged by the Federal Board of Revenue/ Brokerage firm as these affect your costs and hence your returns. There is no prescribed rate of commissions charged and it can vary from firm to firm. Investors must take into consideration the taxes that will be deducted from the trading transactions they will undertake. (For details on current taxes and charges levy, contact your brokerage firm).

Stock selection basics

  • DIVIDEND AND CAPITAL GAIN: An investor may invest in stocks of a company for its Dividend and/ or Capital Gain.

  • Dividend is the return paid to shareholders out of the profits of the company. Dividend can be cash dividend or bonus dividend/ shares. Dividends may be paid out by a company more than once a year.

  • Cash dividend provides for a measure called Dividend Yield. Yield is the measure of cash flow that an investor gets on the amount invested in a security. Dividend Yield is a financial ratio that indicates how much cash dividend a company pays in terms of its share price. Dividend yield is calculated by dividing the cash value of the dividend by the share price. It is defined in percentage.

  • Capital gain is the selling of the shares at a higher price than when purchased. Multiple such trades can result in multiple capital gain accruing to the investor.

  • An investor may decide to invest for dividend yield or capital gain or both. By reinvesting the dividends back into the market and making stock purchases, an investor may compound his earnings.

  • EARNING PER SHARE (EPS): This is a ratio calculated by dividing a company’s net profit after tax by the number of shares outstanding. It’s a measure of the strength of the company in terms of its earning capability for each share issued.

  • PRICE EARNING RATIO (P/E): This is a ratio calculated by dividing the current share price by its EPS. It’s a measure of valuation and indicates whether the price of a share is realistic and is in-line with its earning. If the share is over-priced, then the ratio will be high and if the share-price is low, the ratio will be low.

  • BOOK VALUE OR BREAK-UP VALUE: Book Value per share is calculated by dividing the total equity of a company by its number of shares outstanding. This ratio indicates the asset coverage that each equity share represents in the company.

Account Opening & Trading :

  • Trading Account: Initially, a potential investor needs to open a Trading Account with a brokerage firm, allowing the investor to be registered with the brokerage firm. A client identification number or account number is assigned to the investor.

  • CDC Sub-Account: Subsequent to opening of the Trading Account, a potential investor may open the CDC Sub-Account with the brokerage firm. The CDC Sub-Account allows a brokerage firm/ participant to open many Sub-Accounts against its participant ID. It is through the CDC Sub-Account that the investor is actually able to carry out trades on the Stock Exchange. The CDC Sub-Account are of Individual and Corporate types.

  • CDC Investor Account: It is the most secure type of account. This account is opened directly at the CDC by a potential investor. (However, a CDC-Sub Account is needed to trade in shares on the Stock Exchange). Investors are encouraged and recommended to open a CDC Investor Account for safe & secure trading activity and share deposit. There are two types of CDC Investor Accounts: Individual Investor Account (IIA) and Corporate Investor Account (CIA).

  • Unique Identification Number (UIN): A UIN is issued to every account holder by National Clearing Company of Pakistan Limited (NCCPL). This is a unique number which is given to an account holder regardless of how many other accounts the investor may open for his stock trading activities.

  • PSX Settlement System:

    • National Clearing & Settlement System (NCSS): Settlement/ payments against all trades takes place through NCSS. NCSS is owned and operated by an associated company of the Stock Exchange, called the National Clearing Company of Pakistan Limited (NCCPL).

    • Central Depository System (CDS): All share transfer subsequent to sale of shares from seller to buyer takes place electronically through CDS. CDS is owned and operated by an associated company of the Stock Exchange, called the Central Depository Company of Pakistan Limited (CDC). Shares of some listed companies are traded physically. These shares are exchanged directly between sellers and buyers through their brokerage firms.

    • T + 2 settlement system: Most transactions on the Stock Exchange are settled within two days of the transaction taking place. This is called the T + 2 Settlement system.

    • T + 1/ spot transactions: Spot transactions imply delivery upon payment. Normally in spot transactions, trade is settled within 24 hours.

How to Secure your Account:

To help you safeguard your interest and to avoid complaints against the stockbroker, here are some easy tips:

  • Be wise in selecting your brokerage firm:

    • Before selecting a brokerage firm, visit the offices of a few of them to observe their business practices. Try to gauge the reputation of the brokerage firm by talking to people you meet.
    • Make sure that the brokerage firm and its branch(es) are registered with the Securities & Exchange Commission of Pakistan (SECP).
    • Get clear information on the commission rates and services provided and compare these with those of other brokers.

  • Account opening:

    • You would need to open a Trading Account with the brokerage firm. Subsequently, you would also need to open a CDC Sub Account/ CDC Investor Account. It is important that you open the account(s) in your name.
    • Thoroughly read and understand the terms and conditions of the form of the Trading Account. Strike out any inapplicable clause and sign the same. Get the deleted clauses signed by the brokerage firm as well.
    • A CDC Investor Account is more secure than a CDC Sub Account; hence more preferable. You stay in control of your securities because they can only move once you give a transaction order.

  • Stay well documented at all times:

    • Obtain your Client Identification Number assigned by the brokerage firm.
    • Instruct your broker in writing to always enter the Client Identification Number in the trading system of the exchange while executing your trades. This would help in setting an audit trail of trades made on your account.
    • Make sure that all receipts/ confirmations etc. are issued/ made in the name of the brokerage firm on their stationery bearing their name.
    • Obtain periodic statements from your brokerage firm to keep a check on your trade positions and account balances. Also get a periodic Sub-Account statement from the Central Depository Company to verify your securities and their movement.
    • Make sure to receive and check your Trade Confirmations against any stock trades executed, from your brokerage firm.

  • Be thorough in trading practices:

    • Try to place your trade orders through one person rather than through several, in order to reduce chances of any misunderstanding.
    • Ensure that every time you buy shares, you get them transferred to your CDC Sub Account/ CDC Investor account on the settlement day only.
    • In case of any discrepancies, contact your broker immediately. Don’t make simplistic assumptions or leave things to chance.

  • Take responsibility for investment decisions:

    • Know your financial capacity and needs well. Stock prices keep falling and rising. Losing money in a stock trade is not your broker’s responsibility. Stand by your decisions.
    • Avoid discretionary trading accounts whereby the brokerage firm is given the freedom to execute trades for you.

Pakistan Stock Exchange has embarked on an Investor Awareness drive to educate potential investors about the dynamics and workings of the Stock Exchange. The Investor Awareness Program seeks to educate the general public about the history & background of the Stock Exchange, investing in the stock market, investment avenues, risk/ return parameters, and considerations while investing. The program also seeks to educate the general public about the operational, strategic and regulatory developments taking place at PSX.

For any further information and queries regarding the Investor Awareness Program or for arrangement of Investor Awareness sessions for your organization/ institution, submit your query by clicking below.

As a (prospective) investor, you must trade through TREC (Trading Rights Entitlement Certificate) holders/ brokerage firms recognised by PSX and licensed by the Securities & Exchange Commission of Pakistan (SECP). Most brokerage firms prefer to have their main office at the Stock Exchange building. However, many of them have their branch offices outside the Exchange while many of them have their branches in different parts of the country.

It is important to talk to different licensed and recognized stock-brokers to understand which brokerage firm would be most suitable in terms of your investment objectives and in helping prepare your investment portfolio.

Download list of brokerage firms

Download list of branches of brokerage firms

  • Working with your Stock-broker:

    As an investor, you should work with your stock-broker for investment in the stock market, based on the following guidelines:

  • Talk to a broker
  • Define Investment Objectives
  • Develop Investment Portfolio Statement
  • Identify a Brokerage Firm
  • Open a Trading Account and CDC Sub Account/ CDC Investor Account
  • Deposit money in account
  • Start investing
  • Build a portfolio
  • Regular follow-up with stock-broker

The Default and Arbitration Wing at Pakistan Stock Exchange Limited [“PSX”] (formerly: Karachi Stock Exchange Limited)

The Pakistan Stock Exchange Limited (formerly: Karachi Stock Exchange Limited), being the frontline regulator, plays a proactive role in ensuring that investors’ interest remains protected. Securing the interest of small investors is of prime importance to the Pakistan Stock Exchange Limited (formerly: Karachi Stock Exchange Limited).

In order to keep a vigilant eye on investors’ issues and to provide a platform to the general public for voicing their concerns, Default and Arbitration Wing within Regulatory Affairs Department of Pakistan Stock Exchange Limited (formerly: Karachi Stock Exchange Limited) has been set up.

The Default and Arbitration Wing is responsible for ensuring that grievances/ complaints of the general public concerning investment and trading of securities are heard and redressed, in a quick and efficient manner. This Wing is also responsible for proposing disciplinary actions against defaulting brokers.

Since 2008, this Wing has been working under the supervision of General Manager/ Chief Compliance Officer and has recommended disciplinary actions such as, suspension /expulsion/ forfeiture of membership/ TRE Certificate of 14 Brokerage Houses of Pakistan Stock Exchange Limited (formerly: Karachi Stock Exchange Limited) and settled claims valuing Rs.2.6 billion transparently.

This Wing liaises with Securities and Exchange Commission of Pakistan (SECP), National Accountability Bureau (NAB), Federal Investigation Agency (FIA), Prime Minister’s Inspection Commission (PMIC), Federal and Provincial Ombudsman Offices in the matter of complaints lodged against the Member/ TRE Certificate Holders of the Exchange.

List of Permanent Arbitrators Panel

Panel of Senior Management staff of the Exchange

This includes senior members of PSX Management. One senior member is nominated by CRO in consultation with the Managing Director-PSX for constituting sub-panel of arbitrators.

Panel of Industry Experts

Panel of TRE Certificate Holders

List of Brokers failing to comply with the Awards/Orders of Arbitrators

Status Report of Investors’ Complaint

List of Delinquent Clients

System Auditor Panel

Auditor Panel IBTS

Lodging a Complaint

Online Claim Registration Form

How fo fill E-Claim Form

Claim Form

General Instructions for complaint registration

A guide for investors - Lodging complaints against PSX Members

At present there is no investor/complainant falling under the category of Delinquent Clients.

Enclosures (for individuals):

  • Attested copies of National Identity Card of the applicant.
  • Attested copies of National Identity Card of the Joint Holders and or Nominee(s) (if applicable)
  • Attested copies of passports of the applicant, Joint Holders and or Nominee(s) (in case of non-residents)
  • Copy of the letter of authorization from the Account Holder(s) of the person authorized to trade in my/our accounts (if other than the account holder).
  • A list of Transaction fee, Commission to be charged by the Broker and other CDC charges to be levied.

Enclosures (for corporate entities):

  • Certified true copy of Board Resolution (specimen provided as per Annexure-A below).
  • Certified true copies of Memorandum & Articles of Association.
  • List of authorized signatories.
  • List of nominated persons allowed placing orders.