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A Centralized Customers Protection Compensation Fund (CCPF), formerly known as Investor Protection Fund (IPF), has been established and operated in accordance with the Customers Compensation Fund (Establishment and Operations) Rules, 2017 and Centralized Customer Protection Compensation Fund Regulations, 2017 promulgated by the Securities and Exchange Commission of Pakistan.
The sole mandate of CCPF is to compensate customers of a defaulter stock-broker up to a maximum of PKR 500,000 per claimant whose claim has been admitted by the Pakistan Stock Exchange (PSX).
The Claim invitation process initiates upon declaration of the stock-broker as defaulter by PSX. A customer wishing to file a claim against the defaulter stock-broker can do so by contacting the Regulatory Affairs Division (RAD) of PSX. The ensuing process is as follows:
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.
Primary market/ IPO – Dos: A (prospective) investor must read the Prospectus/ Abridged Prospectus issued against an IPO carefully and note the following:
Primary market/ IPO – Don’ts:
Secondary Market– Dos:
Secondary Market – Don’ts:
Following are some of the important considerations before investing in the stock market:
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.
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).
DIVIDEND & DIVIDEND YIELD: An investor may invest in stocks of a company for its Dividends.
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.
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.
CAPITAL GAIN: Capital gain is the selling of shares at a higher price than the purchase price. Multiple such trades can result in multiple capital gain accruing to the investor.
COMPOUNDING: Compounding is the process in which an asset’s earnings, from either capital gains or profit, are reinvested to generate additional earnings over time. This Investment will generate earnings from initial principal and accumulated earnings from preceding periods.
DIVIDEND REINVESTMENT: This is the process whereby cash dividends earned from a company are reinvested for stock investment.
FINANCIAL LITERACY INITIATIVE:
Pakistan Stock Exchange has embarked on a Financial Literacy Initiative to educate potential investors about investment basics, financial planning, and stock market investments. The Initiative seeks to educate the general public about defining their investment objectives, what to expect from the stock market, begin investing in the stock market, securing their brokerage account, dos & don’ts of investing in the stock market, and considerations while investing. The Initiative 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 Financial Literacy Initiative or for arrangement of Financial Literacy sessions for your organization/ institution, submit your query by clicking below.
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.
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.
At present there is no investor/complainant falling under the category of Delinquent Clients.