2011

FINANCIAL MANAGEMENT
SIR KHURAM MEHTAB
ATIF IDREES ASIM ZAHEER M SALMAN ZULQARNAIN HAIDER SAAD MEHMOOD KLAIR 08108003 08108057 08108058 08108060 07108099

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Contents
EXECUTIVE SUMMARY ................................................................................................................ 3 INTRODUCTION OF PAKISTAN FINANCIAL MARKET ..................................................... 4 INTRODUCTION OF AHEMADABAD FINANCIAL MARKET ............................................. 5 FINANCIAL CRISIS OF PAKISTANI MARKET ..................................................................... 6 SWOT ANALYSIS OF AHAMADABAD STOCK EXCHANGE .............................................10 CURRENT ISSUES IN PAKISTANI FINANCIAL MARKET .................................................11 BOND AND SHARES TRADED IN PAKISTAN.....................................................................12 The different types of bond market in India ...............................................................................14 BEHAVIOR OF INVESTOR IN PAKISTANI FINANCIAL MARKET ...................................16 COMPANIES TRADING IN PAKISTANI STOCK EXCHANGE ............................................18 TRADING PATTERN OF PAKISTANI STOCK EXCHANGE ................................................18 BUYING AND SELLING PROCEDURE IN PAKISTANI STOCK EXCHANGE ...................19 TERMS AND CONDITION FOR PAYMENT IN PAKISTANI STOCK EXCHANGE ............20 RULES OF REGISTRATION IN PAKISTANI STOCK EXCHANGE .....................................25 CONCLUSION .........................................................................................................................28 RECOMMENDATIONS ...........................................................................................................29 BIBLOGRAPHY ...........................................................................................................................30

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EXECUTIVE SUMMARY

We are five group members in our financial management project we have firstly did the comparison between the Pakistani and international financial market. After doing the comparison we study about the swot analysis of both the Pakistani and international market. The we find the current issues in the Pakistani financial market. After finding the issues the types of bonds and shares for both the Pakistani and Indian market has been done. After this we will go through the trading pattern of Pakistani stock exchange and the buying and selling, payment for trading and rules for registration in Pakistan stock market.

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INTRODUCTION OF PAKISTAN FINANCIAL MARKET

In the development of its capital markets, Pakistan has faced issues similar to those in other emerging markets in Asia. But the economic turmoil presents. Pakistan with some unique problems. The country has already achieved a moderate level of capital mobilization through the bond and equity markets at 43 and 22 percent of gross domestic product (GDP), respectively, at the end of 1997. However, the figures are deceptive as government issues dominate the corporate bond marketwith corporate bonds accounting for only 1 percent of GDP. Similarly, the equity market has become more skewed over the past three years, resulting in the top five stocks representing more than 70 percent of market capitalization by May 1998. The downturn in the capital market dates back to late 1994. After several attempts to address the countrys macroeconomic imbalances and deep-rooted structural problems, shortcomings in policy implementation came to light, bringing the country to the brink of a foreign exchange crisis in October 1995. Between the end of 1995 and April 1998, the rupee depreciated by 24 percent. Since 1995, the threat of currency devaluation has deterred foreign portfolio investment. From 1996 onward, deteriorating law and order in Karachi, the Governments prolonged tussle with foreign independent power producers (IPPs), and the constitutional crisis in late 1997 all dampened growth of the capital market. In March 1998, the withdrawal of tax exemption granted to corporate holders of Term Finance Certificates (TFCs) also hit the corporate bond market. Finally, in the aftermath of the nuclear tests of 2830 May 1998, austerity measures were imposed. With the freezing of foreign currency accounts and sanctions imposed by G-8 countries, activities in the foreign exchange market almost ground to a halt and so did foreign portfolio flows. The currency plunged in the kerb market amid fears of an impending debt default. Under the threat of a recession, the bond and equity markets have yet to recover. The negative market sentiment is reflected in the decline of the key Karachi Stock Exchange (KSE)-100 index, which plunged 56 percent during 1998, reaching a record low in July of that year. In view of the political and economic uncertainties, the target implementation schedule of project activities outlined in the second phase of the Asian Development Banks (ADBs) Capital Market Development Program (CMDP) have not been met. Moreover, though continuous efforts have been made by market participants to sustain the pace of restructuring of the capital market, the process is unlikely to gather momentum until the political and foreign exchange situation is resolved.

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The KSE is the biggest and most liquid exchange in Pakistan and in2002 it was declared as the Best Performing Stock Market of the World by Business Week. As of December 8, 2009, 652 companies were listed with the market capitalization of Rs. 2.561 trillion (US$ 30.5Billion) having listed capital of Rs. 717.3 billion (US$ 12 billion). On December 26, 2007, the KSE 100 Index reached its highest value ever and closed at 14,814.85 points. Foreign buying interest had been very active on the KSE in 2006 and continued in 2007. According to estimates from the State Bank of Pakistan, foreign investment in capital markets total about US$523Million. According to a research analyst in Pakistan, around 20pc of the total free float in KSE-30 Index is held by foreign participants.KSE has seen some fluctuations since the start of 2008.Karachi stock exchange Board of Directors has recently (2007)announced plans to construct a 40 story high rise KSE building, as anew direction for future investment. Disputes between investors and members of the Exchange are resolved through deliberations of the Arbitration Committee of theExchange.KSE began with a 50 shares index. As the market grew representative index was needed. On November 1, 91 the KSE-100 was introduced and remains to this day the most generally accepted measure of the Exchange.

INTRODUCTION OF AHEMADABAD FINANCIAL MARKET

Ahmadabad Stock Exchange Limited is a premier national equities exchange that plays a key role in the Indian securities markets. Serving individual and institutional investors from around the world, its primary business is the trading of approximately 2000 nationally listed equities. The Exchange also trades over 200 high growth companies that are solely listed on the ASE or dually listed with another exchange. The Stock Exchange-Ahmadabad, constituted as a Public Charitable Trust in 1894, is the second oldest exchange of India. It is recognized by Securities Contract (Regulations) Act, 1956 as permananent stock exchange. History of Stock Exchanges in India traces back to the nineteenth century with the establishment of the Bombay Stock Exchange in 1875 followed by Ahmadabad Stock Exchange in 1894. In the world map of bourses, the Stock Exchange - Ahmadabad holds a unique place with its initial functioning starting under banyan tree and has progressed year after year there from. Earlier, all the Stock Exchanges in India functioned under the framework of Bombay Securities Contracts Act, 1925. The Securities Contract
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Regulations Act, 1956 was enacted thereafter and all the Stock Exchanges in India were required to get recognition from the Ministry Of Finance. At this juncture, the eventual process of merger took place and Gujarat Share & Stock Exchange, Indian Share and General Exchange Association and Bombay Share and Stock Exchange, Share and Stock Brokers Association merged with the Ahmadabad Share and Stock Brokers Association. The membership of the merged entity was 463. In 1982, The Stock ExchangeAhmadabad got the permanent recognition from the Government Of India The 80s and 90s saw major focus on building up requisite infrastructure and bringing about rapid progress in the area of computerization in the exchanges as whole. Recognizing and appreciating the necessity of computerization and putting emphasis on screen based trading the Stock Exchange-Ahmadabad went live on Dec. 12, 1996. Today, The Stock Exchange-Ahmadabad is one of the oldest bourses with 333 trading members is serving the investors with its transparent trading system which among the best in India.

FINANCIAL CRISIS OF PAKISTANI MARKET

The term Financial Crises: The term financial crises is broadly used for many things means if there is great loss happen than its called financial crisis but its mainly related to banking panics. Other situations in which we often use this term is in stock market crashes. Financial Crisis 2007-2009: The financial crisis of 2007-2009 has been called the most serious financial crisissince the great depression by leading economists, wit h its global effects characterized by the failure of key businesses declines in consumer wealth estimated in the trillions of U.S dollars, substantial financial commitments incurred by governments, and significant decline in economic activity. Causes of the crisis: It is not clear yet whether we stand at the start of a long fiscal crisis or one that will pass quickly, like most other post World War II recession. 1) Fundamental mispricing in the capital markets. 2 ) M i s t a k e s m a d e b y t h e F e d a nd t he o t he r s ba n k s b y k e e p i n g t h e f e d e r a l f u n d s rate too low for too long created bubble and housing bubble. In other words, with artificial low fed funds target, banks filled themselves on cheap funding and made cheap loans available. There has been great disparit y in the quant it y and qualit y of loans in the r e c e nt ye a r s . I n t e r m s o f q u a nt it y, t h e r e w a s a n i n c r e a s e i n l o w - r a t e d i s s u a nc e s o f s h a r e s fr o m 2 0 0 4 - 2 0 0 7 . M o r e o v e r lo a n s t ha t w e r e i s s u e d were mainly given to finance leveraged buyouts.
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Over the same period average debt leverage ratios grew rapidly to levels never seen previously. In terms of quality, there was also a general increase in no documentation and high loan-to-value subprime mortgages. 3) Plus the failure to control poor underwrit ing standards in the mortgage markets means no down payment, no verificat ion of income, assets, and jobs, interest only mortgages, negative amortization, and teaser rates were widespread among subprime, near- prime and even prime mortgages. Wit h default s in interest payments and simultaneously in the Abs, prices drop drastically, leading to a huge loss of wealth severity of the crisis The crisis getting global: Countries around the world had invested in these default ed securit ies, unaware of the fact that returns from them would eventually end up in them paying instead. By the end of 2007 everyone from the world was aware that a crisis is growing very rapidly now. The crisis rapidly developed and spread into a global economic shock, resulting in n u m b e r o f E u r o p e a n b a nk f a i l u r e s , d e c l i n e s i n v a r io u s s t o c k i n d e x e s , a n d a l a r g e reduction in the market value of equities and commodities. The world is t hus taken a new hydra-headed cris is, wit h t h r e e e s s e n t i a l components: food, fuel and finance. The three components have different geographical origins and their effect on different segments of the globe and their inhabitants if highly uneven, but the transmission of these crisis in the global econo my has become much easier and faster since the regime of liberalizat ion of trade, capital flows, deregulat ion and privatization was imposed through the Washington consensus in the early 1990s in the name of achieving higher growth and reducing global poverty. The developing nature of the financial sector has been a saving grace for the Pakistani economy. Less developed linkages with international markets have meant that the direct impact of the financial crisis has not been felt by the Pakistani financial sector. However; effects of the crisis have been felt, even though in a limited manner, by the real sectors of the economy. The effects of the global slowdown have been transmitted through the trade balance; wit h a slowdown in global demand and fall in commodit y prices having varying effects, the capital account; with a significant reduction in private inflows to Pakistan. Pakistan, a fragile economy, has been facing both economic and polit ical crisis which predate the global financial crisis. Inflation, trade deficit, balance o f payment, fo r e i g n e x c ha n g e r e s e r ve s , c i r c u l a r d e bt , p o o r p e r fo r ma n c e o f b a nk i n g s e c t o r a nd Karachi stock exchange political instability have remained the key indicators of Pakistan economic crisis. Political and economic stability complement each other. Pakistan is an interesting case since both are in crisis. The war on terror has become a hanging sword overhead the rate of suicide bombing is increasing day by day.GDP growth rate is a significant indicator to access the healt h of an econo my; It be c o m e s w o r s e s i n c e 2 0 0 4 - 0 5 fr o m 9 . 0 % t o 2 . 0 % i n 2 0 0 8 9 . G o v e r m e nt o f P a k i s t a n s p e n d s a p p r o x i m a t e l y $ 2 6 b i l l i o n p e r y e a r b a s e d o n t h e e x p e c t e d r e v e n u e s o f approximately $ 20 billio n incurring a huge balance of payment (BOP) crisis when the entire donor
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community was also going through financial collapse. IMF aided with $ 7.6billion and with the first tranche of $ 3.1 billion Pakistan foreign reserve rose from $ 6billion to $ 9 billion. There had been 2.6 percent negat ive growth of exports, decreasing from $ 16.4billion last year to $ 16.0 billion in July to April 2008-09. Imports also showed a negative growth of 9.8 percent in July to April 2009. Imports stood at $26.77 billion as against$28.715 billion in the comparable period of last year. Continuous increase in the import bills due to higher oil prices has increased the current account deficit which significantly depleted t he foreign exchange reserves thus enhanced the countrys default risk. Given the unsafe invest ment climate and securit y situation the foreign direct investment inflows also fell more than 20 percent in calendar ye a r 2 0 0 9 . P a k i s t a n s t o t a l e xt e r na l d e b t i s a l s o i n c r e a s i n g w it h t he a p p r e c i a t io n o f d o l l a r a n d c o n t i n u o u s r e l y i n g o n t h e fo r e i g n d e bt . T he n a t io na l s a v i n g s a r e a l s o o n decline.

T h e c o r e i n f l a t io n w h i c h r e p r e s e nt s t h e r a t e o f i n c r e a s e i n c o s t o f g o o d s a nd services excluding food and energy prices also went up to 18.0 percent and for a brief period it even crossed 20 percent. Pakistans local banking sector has shown recoil to the weak macroeconomic environment even though it experienced a decline in decline in deposits. Circular debt is another critical issue which is still a potential indicator of the economic problem. Government of Pakistan is unable to billions of rupees to oil marketing c o m p a n i e s ( O M C s ) a n d i n d e p e nd e nt p o w e r p r o d u c e r s ( I P P s ) . T h e lo ng ho u r p o w e r f a i l u r e s have not only affected the common people, but also s h u t d o w n m a n y businesses.There are no doubts that 2008 global financial crisis has not affected Pakistan wit h a huge blow t hough the government claimed ent irely different. The country has seen some of the worst situations but survived. Pakistan is going through a critical phase at this stage. The country was already facing economic burdens because of it s participat ion in t he war on terror. According to the government of Pakistan, it has suffered economic losses worth US$34 billion so far because of the war. While the aid that it received is far below. The cont inued global economic crisis has hit Pakistan hard. Remittances sent to the country by the overseas, Taliban can take advantages of the bad economic conditions of the country. The price of oil fell to $77 a barrel, almost one-half of the level it had reached a couple of months ago. This put a strain on the spending plans of a number of countries in the Middle East. Some of these countries had large investments planned in Pakistan. In the light of these developments the question arises as to what is the likely impact on P a k i s t a n s f i n a n c i a l g r o u nd s ? H o w s ho u l d P a k i s t a n s p o l i c y m a k e r s r e s p o n d t o t he developments in America, Europe and the Middle East as they begin to address the problems the country is already confronted with? The writer will attempt to answer these questions. P a k i s t a n r e c e n t p e r io d o f e c o no m i c g r o w t h w a s b a s e d o n a c o m b i n a t io n w it h polit ica l instabilit y, led to a rapid in inflat ion, a spike in the trade and current account deficits, and a devaluat ion of t he Pakistani rupee. Alt hough global fuel and
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food prices are on the decline, the U.S financial crisis has precipit ated a possibly extended global recession. For Pakistan, a global recession will likely reduce demand for it s exports, inward FDI flows and overseas remittent. Official Pakistan estimates for inward foreign direct invest ment in 2009 reportedly show a decline of over 32% when compared ran into problems in 2008. Real GDP growth, which had been averaging above 7% per year since fiscal year 2000/2001, declined to 5.8% in fiscal year 2007/2008 and is expected to decline to 2.5% in fiscal year 2008/2009.

Sectoral impact of the crisis in Pakistan: Though the impact of this crisis varies from country to country, but no country will b e l e f t a lo n e t o be ne f i t o r d e t r i m e nt fr o m t h e p r e v a i l i n g c r i s i s . A n a l y s t s be l i e v e t ha t countries wit h large macro-economic balances, poor governance and regulat ion are mo r e p r o ne t o t he n e g a t i v e e f f e c t s o f t h e c r i s i s . Ac c o r d i n g t o a r e p o r t p r e s e nt e d b y overseas development inst itute, UK, the economic, financial as well as social impacts could include: y Weaker export revenues y F u r t he r pressure on c u r r e nt a c c o u nt s and ba la nc e o f payment(BOP). y Lower investment and growth rates. y Lost employment. y Lower growth translating into poverty. M o r e c r i m e , w e a k e r h e a l t h s ys t e m s a n d e v e n mo r e d i f f i c u lt i e s meeting the millennium development goals In Pakistan, the sectors that are most severely hit could financial, business and social. A sum up of all t he sectors that are hit by the current crisis and the subsequent increase in price of commodities and energy, and their present performance could help explain where the country is heading. External sector impact: T h e c o u nt r y m a c r o e c o no m i c s e n v i r o n m e nt i s a f f e c t e d b y i n c r e a s e o f w a r o n terror and deepening of the global financial crisis which penetrated into the domest ic economy through a route of large decline in Pakistans exports and a visible drop in foreign direct inflows. Although contraction in export receipts is more than compensated by massive imports compression sends out from global crash of crude oil and commodity prices, the external sector vulnerabilities remain a threat. Pakistans economy continues t o r e ma i n e x p o s e d t o t he v a g a r i e s o f i n t e r n a t io n a l d e v e l o p m e nt s a s w e l l a s i n t e r n a l security environment. When people stop borrowing and start savings to pay off debt, it acts like a shrinking money supply. Thus goods and services get cheaper, and money get more valuable co mpared to others things. Eco nomies that depend on exports a r e a l s o a f f e c t e d because others such as US and Europe start importing less.

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SWOT ANALYSIS OF AHAMADABAD STOCK EXCHANGE

STREANGTH 1). Investments are the oxygen of growth. Within the larger context of the countrys. 2). Increasing investments in Securities Market, the Company is also investing in multiple spheres - people, technology, capacity expansion and brand building. 3). This is essential for sustaining the growth momentum and continuous Value creation. Due to Demutualization of regional stock exchanges and favorable terms of SEBI, different investors can be a part of the Exchange. 4). Talent acquisition and retention is one of the key result areas for our senior managers. On an on-going basis, the Company endeavors to ensure a vibrant and motivated workforce. The Company is constantly honing people management leadership skills of the employees and is increasingly investing in Innovative human resource. 5). Ahmadabad Stock Exchange is contributing to a great extent in terms of turn over as also building up the economy of the country.

WEAKENESSES 1). No trading by trading members on screen of Ahmadabad Stock Exchange Limited. 2). Due to change in technology the role of regional stock exchange needs to be reinvented

OPPORTUNITIES: A large domestic market that is still into traditional fixed income and other government savings is all buy bound to enter the market sooner if not later.

THREATS:

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Global Economic slowdown, Currency mismanagement, High global commodity prices. Over valuation in Index scripts, Non Liquidity in non-derivatives related scripts. Change in government focus on controlling inflation.

CURRENT ISSUES IN PAKISTANI FINANCIAL MARKET

Pakistan economic environment is affected by intensification of war on terror and deepening of the global financial crisis which penetrated into domestic economy through the route of substantial decline in Pakistans exports and a visible slowdown in foreign direct inflows. Pakistan economy continues to remain exposed to the vagaries of international developments as well as internal security environment. The intensity of the global financial crisis has further added to Pakistan predicament. Despite support from the IMF and other bilateral and multilateral donors, Pakistan external account remains exposed to a host of uncertainties. In growth and in investment we lost investor because of global economic situation, through financial markets which collapse the external demand for its exports and decline in availability of external capital to finance or invest in growth process of the country. According to global financial crisis was felt on market and investor confidence in many developing countries, including Pakistan, as banking systems and asset markets came under stress.

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The manufacturing being the second largest sector of the economy bears significant importance 18.4 percent contribution to GDP. Overall manufacturing sector posted a negative growth rate of 3.3 percent during the current fiscal year against the target of 6.1 percent and 4.8 percent of last year. However, production in large scale manufacturing during July-Mar 2008-09 witnessed a broad-based decline of7.7 percent against the revised growth target of negative 5.0 percent.

The main objective of Pakistan fiscal policy is sustained economic growth in unison with decline debt services, poverty alleviation, the creation of job opportunities and investment in physical and human infrastructure. It is unfortunate that fiscal space available during the last seven years (2000-2007) was not used to provide support to structural reform; instead, painful structural reforms were delayed. The current government decreases the 20 percent governmental expenses.

BOND AND SHARES TRADED IN PAKISTAN

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Three types of bonds are traded in the market. 1. PAKISTAN PRIZE BONDS 2. PAKISTAN INVESTMENT BONDS 3. PAKISTAN EURO BONDS

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PAKISTAN PRIZE BONDS: Prize Bonds are bearer type of security available in the denominations of Rs.200, Rs.750, Rs.1,500, Rs.7,500, Rs.15,000 and Rs.40,000. These bonds are issued in series. Each series consist of one less than 1,000,000 bonds. No fixed return is paid but prize draws are held on quarterly basis. The draws are held under

common draw method and the number of prizes is same for each series. It means that if 50 series of Rs.200 Prize Bond are in circulation. Then on each draw we have 50 winners of 1st prize and 250 winners of 2nd Prize and so on.

PAKISTAN INVESTMENT BONDS: PAKISTAN INVESTMENT BONDS RULES, 2000 1. These rules may be called the Pakistan Investment Bond Rules, 2000. 2. They shall come into force at once. 3. They shall apply to the Pakistan Investment Bonds hereinafter referred to as the Bonds, issued by the Federal Government from time to time. 4. The maturity period of the Bonds shall be three, five, ten fifteen and 20 years. 5. The Bonds shall be issued in multiples of one hundred thousand rupees. 6. The profit on the Bonds shall be paid semi-annually. 7. The Bonds shall not be redeemable before maturity. 8. The Bonds shall be sold by auction to primarily dealers in such manner as may be specified by the State Bank of Pakistan. 9. The coupon rate, maturity wise, shall be announced by the State Bank of Pakistan on each auction. Bidders however shall be allowed to submit their bids at par, discount or premium. 10. The Bonds may be held by individuals, institutions and bodes corporate including banks irrespective of their residential status. The Investment by persons resident outside Pakistan shall be in foreign exchange remitted through the official channels. Such investments shall be eligible for repatriation of the principal as well as periodical profits on the Bonds but the exchange risk shall be that of the investor. 11. The Bonds shall be traded freely in the countrys secondary markets and transferable
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through Subsidiary General Ledger Accounts. 12. The Bonds shall be script less and managed through clients. Subsidiary General Ledger Accounts with banks. 13. The Bonds shall be approved security for calculating the Statutory Liquidity Reserve. 14. The Bonds shall be accepted by the banks as collateral. 15. The profit earned on the Bonds shall be liable to tax under the Income Tax Ordinance, 1979 (XXXI of 1979), Withholding tax on the profit earned on the Bonds shall be deducted at the rate of ten percent at source. 16. There shall be no compulsory deduction of Zakat at source and a sahib-e-nisab may pay Zakat voluntarily according to Shariah.

PAKISTAN EURO BONDS LONDON, Feb 12 2004: Pakistans Eurobond launch lived up to high expectations on Thursday, as a heavily oversubscribed $500 million deal reopened the international market for the nations debt. The bonds priced at par with a coupon of 6.75 per cent, well below initial guidance of 6.875 per cent. The bond offers investors exposure to an improving credit with great scarcity value. Most people were content to buy bonds at the tight end of the range because they were committed to participating, said George Niedringhaus, syndicate official at ABN Amor. Word from the road show was that the order book filled almost immediately, and orders reached $2 billion by the time it wound up in London on Wednesday. Over 200 accounts signed up for the transaction, which was leaded managed by JP Morgan, ABN Amor and Deutsche Bank. Marketing began in Bahrain on Sunday and followed up in Singapore, Dubai, Abu Dhabi, Frankfurt, Hong Kong and London. On the final day of the road show, syndicate officials reported that pricing had narrowed to 6.75pc-6.85pc, from initial guidance of 6.875pc.

The different types of bond market in India

The Bond Market in India with the liberalization has been transformed completely. The opening up of the financial market at present has influenced several foreign investors holding upto 30% of the financial in form of fixed income to invest in the bond market in India. The bond market in India has diversified to a large extent and that is a huge contributor to the stable growth of the economy. The bond market has immense potential

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in raising funds to support the infrastructural development undertaken by the government and expansion plans of the companies. There are five types of bonds using in india
y y y y y

Corporate Bond Market Municipal Bond Market Government and Agency Bond Market Funding Bond Market Mortgage Backed and Collateral Debt Obligation Bond Market

Corporate Bond Market Corporate Bonds are issued by public sector undertakings and private corporations for a wide range of tenors but normally upto 15 years. However, some Banks and Companies like Reliance have also issued Perpetual Bonds. Compared to government bonds, corporate bonds generally have a higher risk of default. This risk depends, of course, upon the particular corporation issuing the bond, its rating, the current market conditions and the sector in which the Company is operating. Corporate bond holders are compensated for this risk by receiving a higher yield than government bonds. Some corporate bonds have an embedded call option that allows the issuer to redeem the debt before its maturity date. Some even carry a put-option for the benefit of the investors. Other bonds, known as convertible bonds, allow investors to convert the bond into equity. MUNICIPAL BOND MARKET With 30% of its population residing in its 5161 towns and cities and growing fast, it is estimated that our cities would require investments of over $200 bn in urban infrastrucutre over the Eleventh Five Year Plan period (2007-2012). The World Bank estimates that atleast $37 bn is needed over the next decade, just to provide safe drinking water and sanitation to city residents. Property taxes and assigned revenues (stamp duty, entertainment tax, motor vehicle tax), apart from state grants, form the overwhelmingly major share of municipal finances. These revenues while adequate for financing smaller works, are nowhere large enough to finance capital intensive infrastructure projects. It is therefore imperative that our Urban Local Bodies (ULBs) look at raising reources externally to fund its huge requirements. The ULBs will have to access the market through a State Pooled Finance Entity (SPFE). Further, it is also proposed to purchase
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guarantees from financial institutions willing to underwrite the risk of a cash-flow shortfall. All this additional layers of credit protection, over and above the Project cash flows, is meant to mitigate the risks, lower the cost of capital and thereby encourage the growth of Municipal debt market in India. While credit enhancement facility may be a good short term intervention to facilitate the emergence of an active Municipal Bond market, there is no substitute for the ULBs getting their financial houses in order. Under the pooled financing mechanism, a number of infrastructure projects will be pooled together and debt finance raised. The cash flows from them will be escrowed into a special bank account from which the bond investors will be repaid. This arrangement has many advantages 1. Helps risk diversification. Even if one project is doing badly, the others can make up the loss due to that 2. Less economically viable, but socially useful projects, can bandwagon on the more bankable projects. 3. By pooling together a num

BEHAVIOR OF INVESTOR IN PAKISTANI FINANCIAL MARKET

Market participants have for a long time relied on the notion of efficient markets and rational investor behavior when making financial decisions. However, the idea of fully rational investors who always maximize their utility and demonstrate perfect self-control is becoming inadequate. In an efficient market, investors would be rational, unbiased and consistent. They would make investment decision without emotion or passion. Their choices would be based on a single goal of maximizing their expected utility. However decision makers do not act the way traditional economic models assume. Contemporary researches reveal the aspect that the investment selection process is more human than analytical. Feeling of loss, pride and regret often override rationality. Finance research has often ignored the individual investors decision making process while taking financial investment decisions current study attempts to understand the issue in hand. Behavioral finance is an emerging science, a relatively new and developing field of academic study that exploits the irrational nature of investors. In contrast to market efficiency theory, that suggests that the security prices incorporate all available information about the company and economy, and prices can be regarded as the best estimates of accurate investment value at all times in the market, the base of behavioral finance is that humans often depart from rationality in a consistent manner. Investment decisions are influenced to some
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extent by our prejudices and perceptions that do not meet the criteria of rationality. Behavioral finance concentrates on irrational behavior that can affect investment decisions and market prices. It attempts to better understand and explain how emotions and cognitive errors influence investors and the decision-making process. Many researchers believe that the study of psychology and other social sciences shed considerable light on the efficiency of financial markets as well as help explain stock market volatility and other anomalies. In global financial markets the use of approaches based on perfect predictions, completely flexible prices, and the complete knowledge of the all the decisions of all other players in the market are increasingly unrealistic. The contribution of behavioral finance is not to diminish the fundamental work that has been done by proponents of efficient market hypothesis. Rather, it is to examine the importance of relaxing unrealistic behavioral assumptions and make it more realistic. It does this by adding more individual aspects of the decision-making process in financial markets. Without these contributions of behavioral finance, certain aspects of financial markets cannot be understood. Despite the importance of individuals investment decisions, however, we know little about the factors that influence them. Finance research has often ignored the individual investors decision making process while taking financial investment decisions hence there is research gap in this area. There is need to develop behavioral paradigm to probe into the determinants of investor behavior and their impact on individual investors financial decision making process. The current study addresses the issue. In developing countries stock markets do offer the opportunity for substantial profits to financial investors and that some of these are beginning to assume a major role in the flow of savings, however their operation and the nature of their stock price behavior needs to be more fully understood. In our study out of three Pakistani Stock Markets we have picked the Karachi Stock Market, because it is the oldest and the most developed market among all three and moreover the KSE remains the main centre of activity and focus of attention because 75 to 80 percent of current trading takes place here. There are different types of investors; two major categories are individual and Institutional investors. This study is particularly focused on the individual investors of Karachi Stock market and later the impact of individual investors investment decisions is analyzed. Pakistani stock market is considered to be highly volatile as it is highly sensitive and reactive to unanticipated shocks and news and it takes no time to impact the market activities. However at the same time Pakistani stock market is resilient, and that recovers soon after shocks. Psychology of local investors is also critical. As some say, it is 90 percent psychology and 10 percent fundamentals.

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COMPANIES TRADING IN PAKISTANI STOCK EXCHANGE

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1. Advertising agencies 2. Banks 3. Engineering consultants 4. EPC companies 5. Fertilizers 6. Food and Personal care products 7. Transport 8. Textile waving 9. Oil refineries 10. Insurance 11. Others

TRADING PATTERN OF PAKISTANI STOCK EXCHANGE

The rupee climbs up one paisa against dollar on Monday after hitting its lowest during the weekend. Dealers said that 1-dollar was bought for 86.20 rupee and sold for 86.24 rupee. State Bank of Pakistan announced in its weekly statement that foreign exchange reserves rose to a record 16.7 billion dollars in the week ending September 24, 2010. Foreign exchange inflows from export receipts and remittances sent by overseas Pakistanis are not sufficient to strengthen rupee. Rupee is likely to weaken further. Reformed general sales tax (RGST) rate announcement and implementation was postponed last month that created doubts in the market and led to tumbling rupee. Money traders increased dollar stocks to deal with the imposition of reformed general sales tax (RGST). The tentative political and economic conditions also led traders to buy dollars. The State Bank increased the interest rate from 13 percent to 13.5 percent, and export refinance rate from 8.5 percent to 9 percent to manage inflation that could negatively impact industrial production and exports. Many countries have slashed interest rates to encourage investment and enhance industrial production. Enhanced interest rates can lead to lower industrial production and decreased exports. Despite State Banks attempt to control inflation by increasing interest rates, prices are still climbing to new heights. This year rupee shed 1.19 percent in value, whereas in 2009 rupee lost 6.17 percent. Continuation of uncertain political and economic conditions can reduce rupees value even further.
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The rupee dropped against other currencies also. Between July, 1st 2009 and September, 27th 2010 rupee fell 1.88 percent against euro, shed 2.15 percent versus pound sterling, lost 17.70 percent against yen, dropped 16.72 percent versus Canadian dollar, and fell 21.01 percent against Australian dollar.

BUYING AND SELLING PROCEDURE IN PAKISTANI STOCK EXCHANGE

There are following three steps of buying and selling of shares in the stock exchange: 1. 2. 3. Inquiry about the prices. Preparation of contract note. Settlement of transaction.

1.

Inquiry about the prices

Stock exchange is the market where shares, debentures or securities are brought for dealing. This place appears in no way to be different from the Bazar. The person who wants to buy or sell at the stock exchange must approach to a broker who is one of members of the exchange. When a broker receives an order from a client, be enters the Hall. It should be noted that non-member is not allowed to go to the Hall of the exchange and transact business on his own behalf. He then approaches one or more Jobbers dealing in particular shares. He enquires him about the prices without letting him know whether he is to buy or sell. The jobbers state two prices the higher one (OFFER PRICE) at which he can dispose of his shares, the lower one (BID PRICE) at which he can purchase. The difference between two prices is called jobber's term. 2. Contract note

The broker then prepares contract note on the prescribed form and signs it himself. This note is also known as bought note or sold note. Contents of the contract note The contract note includes the following information: (i) (ii) (iii) (iv) The name and address of the jobber. The prices and particulars of shares or stock. The name and address of client. The date of settlement.

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(v) The amount of brokerage.

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Generally three copies of contract note are prepared. One copy is sent to the client, second is forwarded to the selling dealer and third he retains himself for record. On the following day, both the parties compare their contract notes. If, on comparison, the contract notes are found to be corrected, each checking clerk will sign to it. The specimen signature of the checking clerks are noted on the cards which they must carry with them when they enter the contract hall All errors in the contract notes are naturally settled by both the parties and thus client does not suffer. 3. Settlement of transaction There are two following basis of dealing in every stock exchange: (a) (b) (a) Cash Basis; Account Basis; Cash basis

This is also known as Ready Delivery basis. Under this method, the parties intend to take delivery of the securities and pay for them. Contracts are to be settled either on the same day or within a short period of time. Usually, period, allowed for its settlement is three days or five days but not more than seven days. In such cases each day is called a settlement day. (b) Accounts basis

On this basis, contracts are settled on fixed settlement days occurring at fortnight intervals. Such contracts can be settled in the next settlement period if both parties agree between themselves. In other words, there can be a postponement of the date of settlement of such contracts. In some stock exchanges settlements are made through the stock exchange clearing house. TERMS AND CONDITION FOR PAYMENT IN PAKISTANI STOCK EXCHANGE

1. Booking A signed Booking Form must be received by us within 21 days of the initial inquiry to confirm any provisional booking. If no Booking Form is received within that period your provisional booking will be cancelled and the time and venue will automatically be made available to other interested parties, without notification to you. Once an invoice has been issued no amendment to the booking will be valid unless accepted by the Exchange in writing. 2. Booking Amendments
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If the Hirer wishes to amend the booking, any changes should be notified to the Exchange immediately in writing. The Exchange reserves the right to adjust the charges payable by the Hirer in respect of the Event as set out in the Booking Form (the Event Charge) to reflect any subsequent changes made by either party to the original booking. If the Exchange is unable to accommodate the Hirers required changes, the Exchange reserves the right to cancel the booking and return the deposit paid, subject to the cancellation periods set out in clause 4. Variable elements of the event need to be confirmed in writing within the appropriate time limit as follows: Itinerary/brief outline of event no less than 14 working days prior to event

Menus no less than 14 working days prior to the event Numbers for Catering no less than three working days prior to the event

Deliveries no less than 24 hours prior to the delivery date including vehicle registration details

3. Payment Terms An invoice for a deposit of 50% of the Event Charge (the Deposit Invoice) will be issued by the Exchange on receipt of the Booking Form from the Hirer. The deposit must be paid by the Hirer within 30 days of the date of the Deposit Invoice. If the Deposit Invoice is issued within one month of the date of the Event (the Event Date), the invoice shall be due for payment before the commencement of the Event. Payment may be made by credit card. Should the Deposit Invoice not be paid by the due date as set out therein, the Exchange reserves the right to cancel the booking. Overdue amounts are subject to a 2% discretionary interest charge. Should the Hirer confirm their booking less than two months before the Event Date, the deposit paid will be non-refundable. An invoice for the balance of the Event Charge including any additional charges payable, less the deposit paid by the Hirer (the Balance Invoice), will be issued as soon as reasonably practicable after the Event Date. The Hirer must pay the Balance Invoice within 30 days of the date of the Balance Invoice. Payment may be made by credit card. Overdue amounts are subject to a 2% discretionary interest charge. Should any invoice not be paid by the due date as set out therein, further bookings by the Hirer may not be accepted by the Exchange until all overdue amounts (including any interest charges) have been paid in full. 4. Cancellation by the Hirer Any cancellation by the Hirer of the Event shall be in writing, marked for the attention of the Sales Manager and shall be served by sending the same by registered post, fax or
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recorded delivery to 10 Paternoster Square, London, EC4M 7LS. Such cancellation shall be deemed to be received 2 days after posting and any receipt issued by the postal authorities shall be conclusive proof of the fact and date of posting of any such cancellation. When a cancellation is served by fax it shall be deemed to be effective on receipt by the Hirer of a successful transmission notification from the Exchange. The fax number of the Exchange (unless notified to the contrary by the Exchange to the Hirer) is (0)20 7 920 4783. If the Hirer cancels the booking two months or more before the Event Date, the Exchange shall return the deposit paid to the Hirer. Should the Hirer cancel the booking less than two months before the Event Date, the Exchange shall retain the deposit. Should the Hirer cancel the booking less than one month before the Event Date , the Hirer will pay 75% of room hire and AV costs. Should the Hirer cancel the booking less than two weeks before the Event Date, the Hirer will pay 100% of room hire and AV costs. Should the Hirer cancel the booking less than one week before the Event Date, the Hirer will pay 100% of the full Event Charge. All payments should be made within 30 days of the date of a Balance Invoice being issued by the Exchange. Payment may be made by credit card. 5. Event Charge All charges are based on the Complexs Price List as may be amended from time to time by the Exchange. All charges are quoted exclusive of VAT which shall be payable in addition to the Event Charge at the current applicable rate. In addition to the Event Charge, the Hirer will also be responsible for paying the Exchanges charges for goods and services provided by the Exchange, at the request of any person purporting to represent the Hirer and having ostensible authority to do so (including any person, firm or company other than the Hirer), being goods and services in addition to those specified in the Booking Form. 6. Conditions of Use of the Media & Business Complex The Hirer agrees to use the Complex solely for the purpose of the Event and for no longer than the times set out in the Booking Form (the Hire Period) on the Event Date. At the expiry of the Hire Period the Hirer agrees to vacate the Complex and remove any equipment advertising, or other material or property that it has brought into the Complex. The Hirer shall ensure that good order is kept while using the Complex and that nothing is done or broadcast which is obscene, illegal, immoral or harmful to the reputation of the Exchange, a nuisance to any other persons occupying or visiting the Exchange, or which may constitute a breach of the peace. The Exchange reserves the right to remove from the Complex (or any other part of the Exchange premises), any person or thing which may, in the reasonable opinion of the Exchange, contravene any of the foregoing. The Hirer shall take all reasonable care of the Complex and the equipment set out, without limitation, in the Booking Form (the Equipment). The Exchange shall reserve the right to charge the
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Hirer for the cost of all damage and loss to the Complex and Equipment arising from the Hirers use. The Hirer agrees not make reference to the London Stock Exchange in any correspondence, literature or documentation sent out by the Hirer or any third party, except to give details of the venue of the function. Additionally, the Hirer will send copies of all documentation connected with the occasion to the Exchange for approval before being sent out or distributed prior to, or at the function. For the avoidance of doubt, nothing in this agreement shall place an obligation on the Hirer to submit information to the Exchange for approval that is confidential to the Hirer including, without limitation, any information that might be considered price sensitive. The Hirer agrees not to place, keep, permit or suffer to be placed or kept in the Complex or any part of the Exchange premises any article or substance which, in the opinion of the Exchange, is of a dangerous, explosive or objectionable nature. The Hirer agrees to bring to the notice of all delegates and visitors of the Hirer to the Complex that all goods brought onto or left at the Exchange premises are brought or left at the owners own risk, including but not limited to the belongings left in the Exchanges cloakroom. As such, the Exchange does not accept any such goods into its charge or control and shall not be in any way responsible for any theft, loss or other damage in respect of such property. 7. Liability If the Exchange is in material breach of its obligations hereunder for any reason or terminates this agreement for reasons other than breach by the Hirer of these terms and conditions, the Exchanges only liability to the Hirer shall be to refund the deposit paid. The Exchange shall not be liable to the Hirer for any loss or profits, business or contracts or any other indirect or consequential loss or damage of any nature whatsoever resulting from or in connection with the Hirers use of the Complex. 8. Indemnity The Hirer shall indemnify the Exchange against all loss or damage to Exchange and/or third party property and in respect of deathand personal injury to any person in conjunction with the Hirers use of the Complex. The Hirer shall indemnify the Exchange against all claims which may be made against the Exchange in respect of such matters, except injury, loss or damage resulting from the negligence of the Exchange.

9. Security The Exchange reserves the right of entry for itself and its contractors and agents to enter the Complex at all times. The Hirer shall observe all rules, regulations and instructions of the Exchange in regard to access of the Complex, the security thereof (including fire security procedures), issuing of passes and the like. As a result, all delegates or visitors to
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the Exchange may have their bags searched. They may also be asked to provide proof of identity. The Hirer is responsible for providing a list of attendees no later than 24 hours prior to the Event either by post, fax or email. This should be sent directly to the event manager assigned to your event or risk delay and possible refusal of admission. The Exchange may alter these procedures from time to time. The Hirer warrants that all delegates and visitors to the Event shall be well known clients or industry contacts of the Hirer prior to any marketing of the Event with bona fide business reasons for attending the Event. The Hirer may carry out registration by delegates for the Event through its website or any other medium accessible to the general public but only where those delegates registered are well known clients or industry contacts of the Hirer with bona fide business reasons for attending the Event and the Hirer has used verification methods at the point of registration to establish this. If the Hirer does not comply with this paragraph 9, the Exchange may terminate this agreement and cancel the event with immediate effect and without liability for compensation or damages. 10. Hirers agents or sub-contractors All these terms and conditions shall apply to the Hirers agents, contractors, sub-licensees and visitors. It is the Hirers responsibility to ensure their compliance with these terms and conditions. 11. Default If the Hirer commits a material breach of these terms and conditions, the Exchange may, at its own discretion, cancel the Hirers booking forthwith and refuse access to the Complex to the Hirer. 12. Force Majeure The Exchange shall use its reasonable endeavours to provide use of the Complex to the Hirer but shall not be liable for the failure to do so or any loss, damage or inconvenience occasioned by causes beyond the control of the Exchange. For the purposes of this clause, causes beyond the control of the Exchange shall include, but shall not be limited to, fire, tempest, flood, riot, civil commotion, explosion, threats relating thereto and any kind of strike, lockout, labour difficulties, war, shortage of materials and interruption of transport, water, electricity, gas or other services. The Exchange reserves the right to have the Complex evacuated at its discretion where it deems it so necessary.

13. Variation

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These terms and conditions and the Booking Form constitute the entire agreement of the parties and may not be varied or added to except by written agreement signed by the parties or duly authorized persons on their behalf. 14. Assignment The Hirer agrees that the booking made on these terms and conditions is personal to the Hirer and shall not, in any way, be assigned, sub-licensed or disposed of to any third party. 15. Applicable Law These terms and conditions shall be governed by and construed in accordance with the laws of England and shall be subject to the jurisdiction of the English Courts.

RULES OF REGISTRATION IN PAKISTANI STOCK EXCHANGE

A person shall be eligible for registration as a broker under these rules, if he: 1. 2. 3. 4. is a member of the stock exchange; is not less than twenty-one years of age; is a citizen of Pakistani; has at least passed graduation or equivalent examination from an institution recognized by the Government:

Provided that the Commission may relax the educational qualification in suitable cases on merit having regard to the applicant's experience; 1. is not a lunatic or a person of unsound mind; 2. has not been convicted of an offence involving fraud or breach of trust; 3. has not been adjudicated as insolvent or has suspended payment or has compounded with his creditors; 4. has experience of not less than five years in the business of buying, selling or dealing in securities; 5. has never been partner of a brokerage firm or a director of a brokerage company which has been convicted of an offence concerning brokerage; 6. has not defaulted in payment of dues at a clearing house; 7. has not defaulted in compliance with the provisions of the Ordinance, the Act and the rules and regulations made there under;
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8. is not in default on settlement of an investor complaint where such complaint has been 9. adjudicated by a stock exchange or a committee of a stock exchange or the Commission; and has complied with the directives of- the Commission in respect of business conduct, dealings with clients and financial prudence. 10. The applicant shall remain in compliance with the requirements of sub-rule (1) at all times and inform the Commission immediately when lie is non-compliance with any. of the terms and conditions.

Characteristics of Stock Exchanges in India Traditionally, a stock exchange has been an association of individual members called member brokers (or simply members or brokers), formed for the express purpose of regulating and facilitating buying and selling of securities by the public and institution at large. A stock exchange in India operates with due recognition from the government under the Securities and Contracts (Regulations) Act, 1956. the member brokers are essentially the middlemen who carry out the desired transactions in securities on behalf of the public(for a commission) or on their own behalf. New membership to a Stock Exchange is through election by the governing board of that stock exchange. At present, there are 23 stock exchanges in India, the largest among them being the Bombay Stock Exchange. BSE alone accounts for over 80% of the total volume of transactions in shares. Typically, a stock exchange is governed by a board consisting of directors largely elected by the member brokers, and a few nominated by the government. Government nominee include representatives of the ministry of finance, as well as some public representatives, who are expected to safeguard the public interest in the functioning of the exchanges. President, who is an elected member, usually nominated by the government from among the elected members, heads the board. The executive director, who is usually appointed by the by the stock exchange with the government approval is the operational chief of the stock exchange. His duty is to ensure that the day to day operations the Stock Exchange are carried out in accordance with the various rules and regulations governing its functioning.The overall development and regulation of the securities market has been
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entrusted to the Securities and Exchange Board of India (SEBI) by an act of parliament in 1992. All companies wishing to raise capital from the public are required to list their securities on at least one stock exchange. Thus, all ordinary shares, preference shares and debentures of the publicly held companies are listed in the stock exchange.

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CONCLUSION

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RECOMMENDATIONS

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FINANCIAL MANAGEMENT BIBLOGRAPHY

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http://www.aselindia.org/about-us.html http://business.mapsofindia.com/sectors/financial/bond-market.html http://www.sbidfhi.com/Products-Services.aspx?id=5 http://gulzar05.blogspot.com/2007/11/municipal-bonds-in-india.html http://ibrahimsajidmalick.com/tag/forex/ http://www.londonstockexchange.com/about-the-exchange/media-complex/terms-andconditions.pdf http://www.ise.com.pk/Regulation/PDF/Brokers%20&%20Agent%20Registration%20Rules.pdf

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