INTERNSHIP REPORT

ISLAMABAD STOCK EXCHANGE

Specialization: Banking and Finance

Submitted To: Chairman, Department of Business Administration

Submitted By: Name: Komal Shujaat

DEPARTMENT OF BUSINESS ADMINISTRATIONALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD

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ACKNOWLEDGEMENT

I would like to acknowledge and extend my heartfelt gratitude to the

following persons who have made the completion of this Internship Report

possible:

Sir Waqar Akbar (Tutor) for his vital encouragement, much needed

motivation and the assistance he provided.

Sir Usman Rashid (Head of Investors Relations Department-ISE) for the

splendid help and inspiration he extended and most important, for the

contribution of his knowledge.

The Staff of ISE, for assisting in the collection of the material for this report.

Most especially to my family and friends.

And to Allah who made all things possible.

Komal Shujaat

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LIST OF CONTENTS

List of Contents Page No.

1: Executive Summary of the Report 1

2: Objectives of Studying ISE 2

3: Overview of the Organization 3

3.1 Brief History 3

3.2 Nature of the Organization 6

3.3 Business Volume 8

3.4 Number of Employees 9

3.5 Product Lines of ISE 10

4: Organizational Structure of ISE 15

4.1 Board Composition 15

4.2 Management of ISE 18

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4.3 Departments of ISE 19

5: Structure and Function of Finance Department of ISE 29

5.1 Structure of the Finance Department 29

5.2 Finance & Accounting Operations 30

5.3 Role of Executive Finance 36

5.4 Use of Electronic Data 37

5.5 Sources of Funds 39

5.6 Generation of Funds 41

5.7 Allocation of Funds 44

6: Critical Analysis of the Theoretical Concepts Relating Practical

experiences 46

7: Financial Analysis of ISE 50

7.1 Balance Sheet of 5 Years 50

7.2 Income Statement of 5 Years 54

7.3 Ratio Analysis of 5 Years 57

7.4 Horizontal Analysis of Balance Sheet 64

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7.5 Horizontal Analysis of Income Statement 69

7.6 Vertical Analysis of Balance Sheet 72

7.7 Vertical Analysis of Income Statement 76

7.8 Organizational Analysis with reference to Competitors 79

7.9 Future Prospects of the Organization 82

8: Weaknesses of ISE 84

9: Conclusion 88

10: Recommendations for ISE 89

11: References 93

12: Annexes 96

List of Tables Page No.

Business Volume of ISE 7

Number of Employees of ISE 8

v

Main codes for Assets 30

Depreciation Rate/Year 31

Main codes for Liabilities 31

Sources of Funds 39

Allocation of Funds 44

Balance Sheet (of Latest 5 Years) 50

Income Statement (of Latest 5 Years) 54

Liquidity Ratios 57

Solvency Ratios 58

Activity Ratios 59

Profitability Ratios 60

Market Performance Indicators 61

Horizontal Analysis of Balance Sheet Table 1 64

Horizontal Analysis of Balance Sheet Table 2 66

Horizontal Analysis of Income Statement 69

Vertical Analysis of Balance Sheet Table 1 72

Vertical Analysis of Balance Sheet Table 2 73

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Vertical Analysis of Income Statement 76

Total Assets, Liabilities & Funds of KSE, LSE & ISE 80

List of Graphs Page No.

Graphs of Key Figures of Balance Sheet 51

Graphs of Key Figures of Income Statement 55

Liquidity Ratios Graph 57

Solvency Ratios Graph 58

Activity Ratios Graph 59

Profitability Ratios Graph 61

Indexes Graph 62

Turnover of Shares Graphs 62

Graph 1 of Key Values of Balance Sheet (Horizontal Analysis) 64

Graph 2 of Key Values of Balance Sheet (Horizontal Analysis) 67

Graph of Key Values of Income Statement (Horizontal Analysis) 69

Graph 1 of Key Values of Balance Sheet (Vertical Analysis) 72

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Graph 2 of Key Values of Balance Sheet (Vertical Analysis) 74

Graph 1 of Key Values of Income Statement (Vertical Analysis) 76

Graph 2 of Key Values of Income Statement (Vertical Analysis) 77

Graphs of Key Figures of KSE-LSE-ISE 81

List of Charts Page No.

Organizational Chart 15

List of Acronyms

CCP Competition Commission of Pakistan

CFS Continuous Funding Settlement

COT Carry Over Transactions

DCA Department of Companies’ Affairs

DIC Department of Internal Control

DIR Department of Investors’ relations

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ISE Islamabad Stock Exchange

ISE-CTS ISE – Computerized Trading System

KSE Karachi Stock Exchange

LSE Lahore Stock Exchange

MD Managing Director

NCCPL National Clearing Company Pakistan Limited

NCSS National Clearing Settlement System

OTC Over the Counter

RBQ Ready Board Quotation

RMS Risk Management Structure

SECP Securities Exchange Commission of Pakistan

TFC Term Finance Certificate

UIN Unique Identification Number

UTS Unified Trading Platform

VAR Value at Risk

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1. EXECUTIVE SUMMARY OF THE REPORT

Islamabad Stock Exchange is the third largest and youngest stock exchange

of Pakistan. I joined it as an internee on August 26, 2009 and worked there

up to November 2, 2009.

Doing internship in a financial institution after completion of 15 courses and

writing an internship report is a necessary part my MBA degree program. The

main purpose of this report is to review the finance and accounting system

and practices implemented by Islamabad Stock Exchange which I learnt

during my 8 weeks of internship at Islamabad Stock Exchange.

My report contains overview of the organization, organizational structure,

functions of finance department, critical analysis of theoretical concepts,

financial analysis of the organization, weaknesses of the organization,

conclusions and recommendations as required.

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2. OBJECTIVES OF STUDYING ISLAMABAD STOCK

EXCHANGE

To understand Stock Market and its working.

To apply theoretical knowledge to practical practices.

To understand work performed by various departments of ISE.

To see the working of stock exchange and brokerage houses.

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3. OVERVIEW OF THE ISLAMABAD STOCK

EXCHANGE (ISE)

3.1 Brief History of ISE

Islamabad stock exchange (ISE) was incorporated as a guarantee limited

company on 25th October, 1989 in Islamabad capital territory with the main

object of setting up of a trading and settlement infrastructure, information

system, skilled resources, accessibility and a fair and orderly market place

that ranks with the best in the world. It was licensed as a stock exchange on

January 7, 1992. For the first time, it started trading in July, 1992.

Initially an outcry method of trading (a method of trading that uses verbal

bids and offers in the trading pits) in shares was adopted which was replaced

with the automated trading system (a computerized system for matching

orders in securities) commonly called “ISE-CTS” in 1997. In the year 2002,

ISECTS gave way to “ULTRA TRADE” trading system which is not only

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very efficient but also has extended trading capacity, internet trading

functionality.

The computerized trading system has brought about much needed

transparency in the securities trading. It has been designed in such a way to

provide automatic matching of bids and offers for execution purpose. All

orders are treated in strict price and time priority, thus ensuring a pure

auction market where no order is overlooked or traded through. In this

manner, the best trade is executed and passed on to the participants without

human interference. Printed confirmation and status messages are

immediately received by a member for each of his order.

Remote Trading or Internet Trading has been implemented in ISE on 23 June

2003. Now Brokers can trade from anywhere in the world using remote

trading software of ISE with the same robustness as working on the LAN.

Islamabad Stock Exchange joined hands with Lahore Stock Exchange on 30

April 2007 to establish a Unified Trading Platform to help in bringing

increased liquidity in the market, improving price discovery, maximizing

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transparency, increasing turnover, broadening investor base, curtailing risks

and distortions in trade, providing cost effective service to the investing

public and enhancing the image of both the Exchanges.

Investor Protection Fund has been established in ISE for the protection of

investors. ISE took the initiative to introduce system audit of brokers in 2002

and made it compulsory for maintaining internal control on members. To

increase market transparency and improve its surveillance capacity, the

Unique (Client) Identification Number (UIN) System was launched at pre

trade level in August 2006 in ISE.

Also a new risk management structure (RMS) was introduced in December

2006 in ISE. New RMS included, among others, a new netting regime; a

margining system based on value at risk (VAR) and capital adequacy. The

VAR is a state of the art risk management system practiced internationally

that takes into account risk associated with each share based on historical

data. System audit of brokers was introduced in 2003 and made necessary.

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When ISE was established T+7 settlement cycle was used for settlement of

shares. T+3 was introduced in 2001 which has been replaced by T+2

settlement cycle in August 2007 to reduce the overall settlement risk in the

market.

ISE incorporated Code of Corporate Governance in its listing regulations on

2002 to strengthen corporate governance practices in companies of Pakistan.

In order to implement a good corporate governance practices in stock

exchanges of Pakistan, ISE took the lead to elect a non-broker Chairman for

the year 2006. Exchange Board of ISE was restructured in 2003 according to

which the Board of Directors constituted of 10 members, of whom 5 are

elected members of the Exchange, 4 are non-members nominated by SECP,

and an independent non-member Managing Director is appointed by virtue of

his office.

On 1 January 2004, ISE launched its own capital weighted index which is

ISE-10 index with a base date of Dec 31, 2002 and a value of 1000. Before

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its launch ISE was using index of KSE-100 and ISE Network Index which

was launched on November 1996.

Currently Islamabad Stock Exchange has 119 members against 200 as allowed

to the exchange, in terms of Article 3(a) of Articles of Association. Of 119

members, 26 are individual and 93 are corporate members.

There are 261 companies listed in Islamabad Stock Exchange at them

moment. However, number of listed companies varies from time to time due

to delisting, mergers and default of companies.

3.2 Nature of the business of ISE

Islamabad Stock Exchange is a market where shares and securities are bought

and sold by the Member/Broker on behalf of their clients and also on their

accounts. The principal activity of ISE is to conduct, regulate and control

the trade and business of stocks, shares securities, bonds, government papers,

loans and other investments or securities of like nature. It is the third largest

and the youngest stock exchange of the country.

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Islamabad Stock Exchange is registered as public company limited by

guarantee (not having share capital) under the Companies Ordinance, 1984

and regulated as stock exchanges by the SECP under the Securities and

Exchange Ordinance, 1969. It is a mutual body in which trading rights of

members are embedded with ownership rights. It implies that when a person

acquires membership of stock exchange by buying a membership seat he

obtains perceived ownership right as well as the right to become the broker

subject to relevant laws. Every member has one voting right. Every member

of the Exchange guarantees to contribute a certain sum in case at the time of

winding up of the company, the liabilities of the institution exceeds its

available assets, however, this guaranteed money does not exceed Rs.1000/-

by each member.

Islamabad Stock Exchange is a non-profit organization. No part of its

revenue can be distributed amongst its members. Their assets can only be

distributed to members in case of winding up. Clause 24 VI of Memorandum

of Association of ISE states that:

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“The income and property of the Exchange whensoever derived

shall be applied solely towards the promotion of the objects of

the Exchange as hereinabove provided and no portion thereof

shall be paid or transferred, directly or indirectly by way of

dividend or bonus or otherwise, howsoever, by way of profit to

the persons who at any time are or have been members of the

Exchange or to any of them or to any person claiming through

any of them.”

Pursuant to the powers conferred on the Securities and Exchange Commission

of Pakistan (SECP) through the Securities and Exchange Ordinance, 1969, the

SECP has compiled a draft of the Stock Exchanges (Corporatisation,

Demutualization and Integration) Bill, 2009 which has been passed by the

National Assembly on October 8, 2009 and is likely to be taken up by the

Senate soon. After enactment, the company will be corporatised and

demutualized thereby it will transform into a public company limited by

shares. Then the profit earned from the operations would be distributed

among the stakeholders and every share would have one voting right.

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3.3 Business Volume of ISE

Description ( in Mil l ions) 2005 2006 2007 2008 2009

Revenue 73.45 86.46 8

8.71 1

09.16 13

0.53

Investments 139.78 108.81 2

48.75 1

76.46 1

09.69

Deposi ts 1.31 1.12 1.

24 1.

24 1.

50

Advances 7.89 11.23 9.

64 1

1.43

14.98

Business Volume in terms of revenue is increasing every year which is a

good sign for ISE. Volume of Investments is varies in every period. They

greatly decrease in year 2009 due to their utilization by ISE. Volumes of

Deposits show the same trend in all these 5 years. However, Volume of

Advances seem to show a different rend and its main reason of increase in

year 2009 is on account of advance paid to Managing Director (which is

almost 2 million) pursuant to the approval of SECP.

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3.4 Number of Employees of ISE

There are total 55 employees working at ISE as follows:

Managing Director 1

Secretary, GM Operat ions, Execut ive

Secretary 3

Deputy Secretary, Deputy Managers,

Execut ive Finance, Project Director 7

Associate Managers 3

Managers 4

Off icers, Accountants, Personal

Secretary to MD 12

Support Staf f , Operators, Protocol 16

Securi ty Guards, Off ice Boy, 9

11

Gardner, L i f t Operator

Total 55

3.5 Product Lines of ISE

ISE offers products and its services to investors, members and companies.

3.5.1 For Investors

The most important customers of Islamabad Stock Exchange are investors.

Investors can invest in one or more of the available products of ISE. ISE earn

profits on the trade transaction fee earned from the transactions of investors.

For investors, ISE has the following product line:

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Ordinary Shares: The most common form of shares, other than preferred

stock; entitles the owner to a share of the corporation’s profits and a share of

the voting power in shareholder elections. Holders may receive dividends,

rights or bonuses which vary in accordance with the profitability of the

company and decision of the company. Ordinary Shares have historically

been the highest return class asset class and one of the few that beat

inflation; however the returns come with high, short to medium-term risk.

Preferences Shares: Preference shares are the shares have a preference over

ordinary shares, carry a fixed/specified rate of dividend which is paid before

the dividend on ordinary shares. The preference shares often do not carry

voting rights. Preference Shares are less risky than ordinary shares but few

companies issue them.

Modaraba Certificates: Modaraba Certificate is a certificate of definite

denomination issued to the subscriber of the Modaraba acknowledging receipt

of money subscribed by him. Modaraba certificates are an Islamic mode of

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financing which holds less risk and can hold high yields in case of increase

of shares.

Bonds: Bonds are debt securities usually having a fixed income. The returns

from fixed income instruments are lower than shares, and are usually lower

than inflation. However, the low returns are compensated by low risk and low

volatility. ISE doesn’t have a very active bond market.

Term Finance certificates (TFCs): A debt instrument issued for the purpose

to raise fund in the form of redeemable capital. They also have fixed income

and maturity of more than one year. Currently, there are no TFCs registered

in ISE

Future Contracts: A Futures contract involves purchase and sale of

securities at some future date at a price fixed today. Futures contracts are

volatile since the price of the securities involved in these contracts can vary.

As a result futures contracts entail a substantial risk to the investors involved

in futures trading. ISE offers the following two types of future contracts:

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Deliverable Futures: The amount specified of the underlying

securities of the contract is delivered by the seller of the contract to

the exchange, and by the exchange to the buyers of the contract.

They

are considered to be very risky due to which they are discontinued on 8

April, 2009 on the notice of SECP. Deliverable Future market has

already been re-launched since last week of July 2009 at other bourses

and very soon be operative at ISE.

Cash Settled Futures: A cash payment is made based on the

underlying reference rate of the securities. They are less risky then

deliverable future contracts.

Mutual Fund Units: Mutual Fund is a diversified portfolio of securities

invested on behalf of a group of investors and professionally managed by

Asset Management Companies. Mutual Fund Units can provide investor with

regular income or consistent capital appreciation. They are riskier than fixed

income securities but they offer more return than them. ISE offers following

two types of Mutual Funds:

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Close-Ended Mutual Fund: Closed-end mutual funds are actively

managed funds that raise capital only once, by issuing a fixed number

of shares. The price of a share in a closed-end fund is determined

entirely by market demand, so shares can either trade below their net

asset value ("at a discount") or above it ("at a premium").

Open-Ended Mutual Fund: Open ended mutual fund is a type of

mutual fund that does not have restrictions on the amount of shares the

fund issues. If demand is high enough, the fund will continue to issue

shares no matter how many investors there are. For most open-end

funds, shareholders are free to sell their shares at any time, although

the price of a share in an open-end fund will fluctuate daily, depending

upon the performance of the securities held by the fund. Benefits of

open-end funds include diversification and professional money

management. Open-end funds offer choice, liquidity, and convenience,

but charge fees and often require a minimum investment.

Margin Financing Product (in progress): Unfortunately, no margin

financing product is currently available in ISE. Carry over transactions

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(COT) or ‘badla’ introduced in 1994 was stopped in 2005. Continuous

Funding Settlement commonly known as “CFS” system was introduced in

2005 to replace COT which was again replaced by CFS MK-II on July 2008.

On 8 April, 2009 CFS MK-II was discontinued on the notice of SECP without

offering of any substitute product. New Margin Financing System as

proposed by Consultative Group on Capital Market has been approved by

SECP. It has yet to be implemented.

3.5.2 For Members/Brokers

A member/broker of the stock exchange is entitled to do share trade for

himself or his clients/investors. For members following products and services

are provided by ISE:

Membership Seat: A member/broker is either an individual or corporate

body that owns a membership of the exchange and is authorized to deal in

scrips listed on the exchange. Members have to buy membership seat to

become a broker of ISE and they also annually pay charges for being the

member of ISE. ISE offers individual and corporate memberships.

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Rooms for Members: Members usually prefer to sit inside stock exchange

for trading transactions. ISE offers rooms in its new towers to brokers. It also

provides services like electricity, gas, generator, etc.

Technology: ISE also provides technology to members or brokers for trading

in stock exchange. It provides “ULTRA TRADE” to members which is stock

trading software targeted for small to medium sized stock exchanges. It is a

highly scaleable and cost effective solution for the emerging stock

exchanges. State-of-the-art technology has been used for the best

performance and very good response time to the end-user. Recent benchmark

result shows that system is capable of at least 100,000 trades per hour. ISE

also provides remote trading or internet trading to brokers.

3.5.3 For Companies/Issuers:

This segment contains the companies whose shares can be traded at the

Exchange. For companies, ISE provide the following service:

Listings: ISE provides a place for listings of securities of companies.

Companies pay listing fee to ISE for getting their securities listed in ISE.

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Following is the listing fees which companies have to pay for listing their

securities:

Companies Having Paid-Up Capital Rate of Fee (Rs. per annum)

Upto Rs. 10 Million 1,250.00Above Rs. 10 Million & upto Rs. 20 Million 2,500.00Above Rs. 20 Million & upto Rs. 30 Million 3,750.00Above Rs. 30 Million & upto Rs. 40 Million 5,000.00Above Rs. 40 Million & upto Rs. 50 Million 6,250.00Above Rs. 50 Million 7,500.00

4. ORGANIZATIONAL STRUCTURE OF ISE

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Organizat ional Chart of ISE

Note: Organogram of the organization is in Annexure I

4.1 Board Composition

The affairs of the Exchange are governed by the Board of Directors. The

Board of Directors of ISE consists of ten members. Five Directors are elected

each year from amongst the members/brokers community. Four Directors are

Board of

Directors

Managing Director/CEO

GM (Operations)Company Secretary

Department of Companies’ Affairs

Department of Internal Control

Department of Investors’ Relations

Department of General

Administration/Finance

Department of New Building and

Towers

IT Wing/Department

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nominated by SECP for the corresponding term with the elected Directors.

The Managing Director is a permanent Director on the Board by virtue of his

office. The Chairman of the Board is elected in the first meeting by the entire

Board Members except for Managing Director who plays a neutral role during

the course of such election.

The responsibilities, powers and functions of the Board of Directors are

given in:

1. The Companies Ordinance (Sec 196)

2. Articles of Association of ISE

3. Listing Regulations of ISE

Following were the BOD for year 2009:

1. Mr. Rashid Akhtar Chughtai (nominee director of ISE, Chairman)

2. Mr. Aftab Ahmad Ch. (managing director of ISE)

3. Mr. Mohammad Afzal Khan (nominee director of ISE)

4. Mr. Waseem ul Haq Malik (elected director of ISE)

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5. Mian Humayun Parvez (nominee of M/s. Mian Parvez Aslam

Securities (Pvt.) Limited)

6. Ch. Iftikhar Ahmad Lt. Col(Retd) (nominee of M/s. SIS Securities

(Pvt.) Limited)

7. Mr. Aslam Khaliq (SECP’s nominee)

8. Syed Mukhtar Hussain Jaffery (nominee of M/s. Unex Securities

(Pvt.) Limited)

9. Mr. Farrukh Younus Khan (nominee of M/s. Y.S. Stock (Pvt.)

Limited)

10. Mr. Muhammad Shahid Sadiq (nomine director on the Board of

Directors of the Exchange)

All elected and nominated Directors retire in the AGM by October 31 each

year and new Board is elected accordingly.

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4.2 Management of ISE

The day-to-day affairs of the Exchange are managed by the management

headed by a full time Managing Director, who is assisted by the Company

Secretary and the General Manager. Other people in management include

Deputy Manager Operations, Manager Operations, Head of Finance and

Accounts, Deputy Manager of General Administration, Deputy Secretary,

Deputy Manager Internal Control & Deputy Head of Surveillance

Department, Manager IT, Associate Manager IT, Project Director Towers,

Deputy Manager Infrastructure, Building Support Officer and Building

Accounts and Record Officer.

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Besides, there are a number of committees which look after as well as

facilitate various aspects of Exchange’s working. For instance, there is a

Listing Committee which takes care of listing of new companies on the Stock

Exchange. Then there is Trading, Regulation and Technology Committee

whose responsibilities pertain to issues relating to trading, regulations and

technology. Arbitration Committee is another such committee which is

entrusted with the task of arbitration in the matter of trading disputes among

members and between members and investors when the same cannot be

resolved amicably.

4.3 Departments of ISE

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The main departments of Islamabad Stock exchange and their functions are

given below in detail:

4.3.1 Department of Companies Affairs

Department of Companies Affairs is headed by Deputy Manager DCA who

has to report to Manager Operations. Department of Companies Affairs

oversees the following matters:

Ensure Listing Requirements: A company that seeks to offer its shares to

the public and wishes to apply for a listing on the Stock Exchange must

comply with the listing requirements of the Exchange, in addition to

compliance with the provisions of the Companies Ordinance, 1984. The

companies interested in getting listed in ISE send their applications with

adequate disclosure documents to this department and listing fees. The

department then processes and analyzes the applications and the sent

documents. After clearing those documents, it puts the case before Trading,

Regulation and Technology Committee of Exchange for consideration and

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recommendation. Once approved by the Chairman, company is listed on the

ready board quotation (RBQ) of the Exchange.

Compliance with Code of Corporate Governance: The main document,

which comes under consideration of department of Companies’ Affairs, is the

code of corporate governance. With continuous listing requirements,

department of Companies affairs has to ensure compliance of code of

corporate governance as specified by SECP.

Post-Listing Monitoring: The requirements of the Exchange for listing

relate to management and company procedures, disclosures, provisions

concerning the issue of prospectus for the issue of shares to the public,

distribution of financial statements and other matters to keep the public and

the exchange(s) adequately informed on all aspects of the affairs of the

company, which may affect the market value of its shares. Department of

Company Affairs monitors that whether the requirements of listing are

completed by the listed companies or not.

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This department also keeps an eye on the company affairs of the listed

companies that whether they are going according to the rules and regulations

of Islamabad Stock exchange, whether the company issues public notices,

right issues, bonus issues and whether they pay their listing fee regularly or

not.

Quotation Wing: Quotation Wing of Department of Companies’ Affairs

provides ready board quotations of listed companies in Islamabad Stock

Exchange. It calculates the index of market operations on the daily basis

after the closing of trading activities and forwards this index result to media.

Record Room: Department of Companies Affairs also has a record room

which keeps the record of all the listed companies. These records include

annual reports, semiannual reports & public notices issued by the companies

time to time. It also dispatches the letters, reports & notices to the companies

and members and keeps its record.

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4.3.2 Department of Internal Control

Department of Internal Control is headed by Deputy Manager DIC who has to

report to Manager Operations. Department of Internal Control controls and

members and oversees the following functions:

Grant of Stock Exchange Membership: Department of Internal Control

deals with granting membership to brokers. Only a member of the stock

exchange is entitled to do share trade for himself or his clients/investors. One

can start the business of share trade as a broker only after having the

membership of any stock exchange and then registration as broker with the

SECP. The members of ISE are required to fulfill the eligibility

criteria/registration process defined by Islamabad Stock Exchange and the

SECP. The authorized strength of membership at ISE is 200, but a far less

number actually maintain an ‘active’ brokerage house. The membership at

ISE is of two types namely the corporate memberships and individual

memberships.

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Registration of Brokers/Agent with SECP: A member desirous of acting as

broker makes an application to the SECP in Form as set out in the First

Schedule of the Brokers and Agents Registration Rules 2001 for grant of a

certificate of registration through the ISE. Department of Internal Control of

ISE forwards the application to the SECP within 14 days from the date of its

receipt.

System Audit of Brokers: The system audit of the members is overseen by

department of internal control. Under the system audit, members are bound

for audit from reputable charted accountant firm. ISE has devised a

comprehensive procedural framework so that each and every broker must be

systematically audited at least once in two years under system audit

regulations. In this context ISE has constituted a panel of system auditors

comprising 12 QCR rated Chartered Accountant Firms. After reporting from

charted account firms a list is prepared for purpose of such audit regarding to

members. If the report is unclear or qualified than some time is given for re

audit, despite the time giving if the members fail to re audit or for clearance

29

such audit, the report is send to SECP. After the receiving the report from

SECP, the action is taken against such member. During the year 2008-09,

system audit of 18 brokers were completed whereas system audit of 2 brokers

is under progress.

Monitoring & Surveillance: Department of Internal Control monitors price

fluctuation and trading patterns to ensure compliance with regulations and

detection of speculative activities. It does online monitoring during market

operations and offline monitoring by post trading checking of concentrations

and susceptible positions, etc. This department imposes circuit breakers and

trade halts in order to save sudden volatilities like erosion or abrupt hike of

scrip prices. It instantaneously verifies the announcements and rumors from

the concerned quarters.

IT Wing: IT Wing/(sub-)department also comes under Internal Control. The

main responsibility of IT department is to monitor computerized trading. ISE

has a fully computerized system. Bids (buy orders) and offer (sale orders) are

placed in the trading software (currently “ULTRA TRADE”) and then

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executed. IT is also responsible for website designing, software upgrading,

system maintenance, database maintenance, networking and to resolve IT

related problems of any department of ISE. IT Department is maintaining a

multiple VLAN network of about 250 nodes which is operating at 100 MBPS.

Through it , ISE is connected with SECP and other stock exchanges of

Pakistan.

Risk Management: Department of Internal Control also monitors risk

management. Department of Internal Control ensures risk management at

different levels and has taken the following measures:

Circuit breakers are applied in case of price fluctuation 5% or Rs. 1.00,

whichever is higher, from the closing price of the previous day.

The requirement of Net Capital Balance has been enhanced by 10 times

to Rs. 0.75 million for ISE. The definition of net capital balance is

redefined to make it more realistic. (Rules of Net Capital Balance

Certificate)

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The Members are required to maintain a capital adequacy ratio, which

is 25 times of their net working capital. The exposure must not exceed

25 times the net capital employed.

The members’ ability to trade up to Rs. 50 million without margin was

abolished and all exposure is now subject to margin.

Investor protection fund and clearing house protection fund had been

established on the directive of SECP.

The undisclosed market system has been introduced.

The trading cycle was reduced to T+3 net settlement system from T+7

days. Now T+2 system is adopted.

Blank selling is abolished.

Penalties are imposed on members on violation of rules of Islamabad

Stock Exchange.

Clearing and Settlement: Clearing and settlement is done under the

supervision of Department of Internal Control. Clearing and settlement

system has been outsourced by ISE to NCCPL. Now NCCPL performs trade

settlement function at national level. NCCPL not only facilitates the trade of

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brokers executed through the official trading system within the exchange but

also the broker to broker trades between brokers of different exchanges and

institutional deliveries. On the settlement date the trading brokers fulfill

their cash and share delivery obligations to NCCPL for the settlement of all

trades.

4.3.3 Department of Investors’ Relations

Department of Investors’ Relations is headed by Associate Manger DIR who

has to report to Manger Operations. The main purpose of Department of

Investors’ Relations is to facilitate investors. Department of investors’

relations performs the following main functions:

Provide Information to Investors: Department of Investors’ Relations

provides routine information related to market prices of shares, etc., to

investors on their request. Its main objective is to facilitate investors in

every way it can. ISE has installed hotline for providing online reply to some

basic questions about the stock market. For this purpose ISE has obtained a

33

Universal Access Number i.e. 111-ISE-ISE (111-473-473). Extension of

Department of IR is 113 on which it provides answers to queries of investors.

Deal Complaints of Investors: Department of Investors’ Relations deals

with all the complaints of the investors. Investor Complaint Registration

Form is available on website of ISE. ISE receives complaints of a varied

nature. Of these the most common are those that are lodged against the

brokers/members of the stock exchange. These relate to:

• Unauthorized trading

• Unauthorized transfer of shares

• Non-supply of statements of account

• order execution problems

• Introduction of fake, forged and stolen securities

Department of Investors’ Relations reviews and evaluates complaints of the

investor against member. After complaint seems appropriate the matter is

then taken up with the concerned member who is/are requested to send

his/their comments/observations to the ISE, a copy of which is also sent to

34

the complainant. The matter is likely to be resolved at this stage. In case

reservations remain despite the exchange of correspondence, Department of

IR may initiate an investigation in order to ascertain the true facts of the

matter. This could involve inviting both parties to a face-to-face meeting for

resolving the matter through Floor Committee. If even then the dispute

remains unsettled, the case is referred to Arbitration Committee. Complainant

and members can also file an appeal against the award announced by

arbitration committee.

Handle Legal and Default Cases: Investors can also file cases against

members of ISE in Civil Court. The department of Investor relation is the

representative and defender of ISE in the civil court in case of legal cases

against the member of ISE. It is responsible to provide all records regarding

to member and concerned investor on the demand of court.

Department of Investors’ Relations deals with default cases of members and

the recovery and distribution of losses of the defaulters to the affectees.

Board of Directors of ISE declares a member as default and then the matter is

35

referred to Default Management Committee. ISE pays affectees of default

cases on pro-rata basis from Investors’ Protection fund and other assets of

the defaulter. Department of IR handles this whole procedure and gives

payments to affectees.

Educate Investors: Department of Investors’ Relations has taken initiatives

of educating public about stock market in ISE. It arranges

presentations/briefings to the general public and students about the working

and functioning of the stock markets. It also arranges seminars with speakers

of great profile in the corporate sector.

Maintain Records: This department maintains the records of the newspapers.

Everyday they provide the news and articles related to stock exchanges and

other important factors, which can affect the performance of stock market

and related business, to Management of ISE for study. They also keep the

record of cases of investors’ complaints, default and legal cases which are

often needed during audit.

36

Media Relations: Department of Investor Relations also maintains relations

with media and provides them the information they need.

4.3.4 Department of General Administration/Finance

Department of General Administration and Finance is headed by Executive

Finance who has to report to company secretary. It performs the

administrative and finance related functions. Department of General

administration performs finance and administrative functions.

Administration Control: Department of General Administration performs

the administrative functions such as planning activities, organizing events,

recruiting staff and maintaining an overall control. Its main objective is to

direct, supervise, plan and control the organization.

Finance Control: Mainly this department has to carry out all book keeping

related functions, make budget and ensure timely audit of the Exchange. It

makes the accounting procedures for ISE. It also deals with corporate tax

matters.

37

4.3.5 Department of New Building and Towers

This department has been newly established within ISE to monitor the

progress of ISE Towers and its maintenance and to do the marketing of ISE

towers.

ISE Towers: ISE intended to construct a high-rise structure in order to cope

with the up-coming demands of stock exchange business. For this purpose,

ISE build new building which is properly designed using latest techniques to

with stand against any natural disasters. Also the site selected for its

construction is situated in the respected area of federal capital territory. The

salient features of this building are as under:

ISE tower is 22 storey building located at (plot no 3035) Jinnah

Avenue Blue Area Islamabad.

Area covered by the building is 562,629 sq.ft, i t comprises of three

levels of basements and ground plus 18 floors above.

Basements have capacity to accommodate three hundred cars at a time;

also it has a plant room for latest HVAC system requirements.

38

Ground floor is allocated for meeting the requirements of banks.

First and second floor will provide space for the brokers, and above

floors are reserved for Islamabad stock exchange offices.

Each floor is provided with (6 No) passenger lifts, accompanied by one

cargo lift and three stair halls.

The central cooling and heating system is provided in the building and

it is also equipped with latest communication and electrical systems.

For a safe working environment, properly designed fire fighting system

is provided along with the emergency fire exists.

It was inaugurated by Prime Minister Syed Yousuf Raza Gilani on July

31st, 2009.

5. STRUCTURE & FUNCTIONS OF THE FINANCE

DEPARTMENT OF ISE

5.1 Structure of the Finance Department

39

ISE has a combined department for general administration and finance. It is

headed by Sagheer Mushtaq who is Executive Finance of ISE. He is qualified

CMA and holds sufficient experience of Audit and Finance fields. Under him

works Syed Nayyer Ashfaq who is Deputy Manager of General

Administration. He is managing the accounts and administration of the

Exchange. He is a Commerce Graduate and pursuing further studies in

Business Administration field. Under him, work 2 Accounts Officers and 1

Accounts Assistant.

The main function of this department is to make accounting policies and

procedure with the aim to present a true financial position of ISE financial

statement. This department is also performs the administrative functions for

the ISE such as sanction of leaves, approval of tour program.

Note: Organogram of the Finance Department is in Annexure II.

40

5.2 Finance & Accounting Operations

5.2.1 Charts of Accounts

ISE does data entry in electronic form. Charts of Accounts have been

established in Sidat Hyder-Financials which is the Accounting Software of

ISE. Further processing in ledger and trial balance is done by that software

automatically. Chart of Accounts also contains codes of accounts and sub-

codes for further explanation of accounts. 2 digits number is used for main

code and a 3 digits number is used for the sub-code of the account. Accounts

are arranged in ledger in financial statement order that is assets first,

followed by liabilities, funds, revenue and expenses.

Assets are directly recorded in Sidat Hyder – Financials. ISE has no special

journals or registers for recording fixed assets or other assets. Codes of

Assets are in between range of 01- 29. Following are first ten codes of asset:

Main codes for assetsFixed assets 01Accumulated depreciation

02

Long term investment 03Capital work in progress 04

41

Security deposit 05Advance against expenses

06

Advance against salaries 07Advance against source 08Advance against tax deduction

09

Advance prepaid 10

Fixed assets are stated at cost less depreciation in balance sheet.

Depreciation is applied using straight line method with following

depreciation years or depreciation rate:

Depreciation Rate/YearLeasehold land 99 yearsFurniture and fixtures 10%Office Equipments 10%Vehicles 20%Computer and related equipment 33%

Data-entry for Liabilities is also done directly in the accounting software.

Codes of Liabilities lie in range 30-49. Following are the first ten codes of

liabilities:

Main codes for liabilitiesAccumulated deficit 30Member fund 31Clearing house taxes 32Rent received in advance 33Advance from companies 34Accrued expenses 35Payable audit fee 36Security deposits from companies

37

42

Member default 38Sundry creditors 39

Member Protection Fund was established to meet the counter party liabilities

caused by clearing house default by member. Similarly, Investor Protection

Fund was established for distribution to those investors who might suffer loss

due to the default of members of the company. Till 2007 Members Protection

Fee and Investors Protection Fee were included in funds but accounting

practices changed in 2008 and instead of funds, they were included in non-

current liabilities. Now as per requirement of UTS Regulations, instead of

Member Protection Fund, ISE has established the Settlement Protection Fund

on June 30, 2009 by transferring funds available in Members’ Protection

Fund and accumulated surplus to meet the counter party liabilities caused by

clearing default of a member. This Settlement Protection Fund is also treated

as non-current liability by ISE.

ISE is a company limited by guarantee which doesn’t have the share capital.

So, sponsor’s equity is represented by funds. General entrance fee fund is the

main fund which represents the entrance fee taken from new members who

enter the market of ISE. Codes of funds lie in 60s.

43

Codes of Revenue lie between 60-79. All the sources of revenue whether in

form of cash, cheques, pay order or demand draft are first recorded in receipt

book which contains receipt vouchers. Receipt Voucher has to be signed by

any accounts officer or assistant. Original receipt voucher is given to the

person or company who made the payment and 2 carbon copies containing

yellow and pink color are maintained by ISE for their own record. This

revenue amount is then deposited in bank account of ISE. Before submitting

the amount, an entrance is made in depository slip book of ISE. Depository

slip contains source of revenue, amount of cash and cheque, pay order or

demand draft number of the source of revenue. One side of depository slip is

torn and given to bank while other is maintained with ISE for their record.

After depositing the amount, it is also manually entered in Cash Book

Register. Every quarter bank statements are reconciled with the amount on

Cash Book register. If that amount in cash book register is collect, i t is

electronically entered in Accounts of Sidat Hyder – Financials.

44

Codes of Expense lie in between 80-99. Expenses made are either in form of

cash paid from petty cash fund of ISE or in form of cheque. Expenses paid in

form of cash are written on petty cash voucher and their amount is entered in

petty cash voucher register. Expenses which are paid in form of bank cheques

are recorded on vouchers made by Sidat Hyder – Financial Software and from

there the amount is directly recorded under expense head. Petty Cash

Voucher has to be signed by managing director, general secretary, or manager

of general administration department. Incase of bank cheques, minute sheet

of expenses signed by any one of managing director, general secretary or

deputy manager of general administration, has to be attached with voucher.

5.2.2 Vouchers

ISE has only one voucher for cash receipts. There are two vouchers for cash

payment. One is for cash expenses made for petty cash fund and other is for

bank cheques which are made by Sidat Hyder Software. All vouchers contain

the following particulars:

(i) Name of the Organization

45

(ii) Voucher type

(iii) Date of the voucher

(iv) Voucher number

(v) Account title

(vi) Account code

(vii) Reference

(viii) Amount debit

(ix) Amount credit

(x) Amount in words

(xi) Amount in figures

(xii) Name of person who made the expense or gave revenue

(xiii) Authorization

5.2.3 Budget

The budget is made on quarterly basis as well as on yearly basis. Every

department sends its estimated expenses to the finance department. Finance

department makes estimates for the revenues for the quarter and overall

46

expenses estimates. According to both estimates, it makes the final budget.

At the end of every quarter, comparison between the budgeted amount and

actual amount using variance analysis is made in “Management Report”.

5.2.4 Audit

ISE conducts following two types of audit:

Internal audit: There is a separate internal audit department which

overall sees the financial controls. The qualification of Internal Audit

is ACMA.

External audit: The audit is done at the end of quarter in ISE by a

reputable firm as selected in the Annual General Meeting. After the

completion of quarterly audits, the annually audit is also done. Since

2004, M/s. KPMG Taseer Hadi and Company, Chartered Accountants

are being appointed as external auditors of ISE.

Special audits are also conducted when required like Regulatory Audit of ISE

conducted in 2008.

47

5.3 Role of Executive Finance

Executive Finance performs the following functions as an overall finance

manager:

Financial Management: Executive Finance takes the investment,

financing and asset management decisions of ISE.

Corporate Planning: Finance Executive performs the process of

drawing up detailed action plans to achieve an organization's goals and

48

objectives, taking into account the resources of the organization and

the environment within which it operates.

Fund Management: ISE has three different types of funds. Executive

finance administers all these three funds.

Analysis of Financial Statement: Executive Finance does the analysis

of financial statements and takes decisions on is basis.

Internal/External Reporting: Executive Finance does the internal and

external reporting of financial statements of ISE.

5.4 Use of Electronic Data

The finance department keeps all the financial data in electronic form. All

financial statements such as balance sheet, income statement, statement of

cash flows are prepared electronically through the software “Sidat Hyder-

Financials” prepared by a Sidat Hyder Morshed Associates (Pvt) Ltd. The

main features of that software are as follow:

49

Sidat Hyder-Financials is an award winning suite of

accounting applications catering to the accounting requirements of any

organization. There is only need to just define a chart of accounts of all

expenses, income, purchases, sales, suppliers, customers, assets and capital

of all the major event of a business in the software. It then automatically

makes ledgers, income statement and balance sheet of business on a specific

date.

It contains sub modules of General Ledger and Fixed Assets. General Ledger

Module can be easily configured to fulfill all the accounting requirements of

any size and type of business organization. It offers features like budgeting,

cost centers, user defined system configuration, customized reporting,

choices of database (MS SQL Server, Sybase or Oracle), Secure Audit

Control, Flexible Vouchers, flexible data processing, special provision for

payments and tax, etc.

Fixed Assets module is an easy-to-use, full featured system that saves hours

by streamlining organization, maintaining current fixed-assets records,

50

maximizing controls and generating up-to-date reports. The module is

designed to serve as an ideal tool for all asset management requirements

providing complete asset handling from acquisition, transfer, adjustment,

write off to disposition, comprehensively maintaining and organizing all

related records and producing depreciation schedules for financial and tax

purposes.

Sidat Hyder-Financials also has a spreadsheet like “Report Writer” which

enables to use any of available analysis parameters to design Financial

Statements. Different mathematical operations, reporting layouts, fonts and

options to make comparative analysis, etc., are available for effective and

optimal report and design and utilization.

Data prepared by that software is used by management of ISE for decision

making and preparing future plans. The first report which is generated is the

budgeting report which contains the budgets allocated to various departments

of ISE. Then Management Report is generated which contains the analysis of

51

financial statements and comparison between budgeted and actual figures is

made for some time period.

5.5 Sources of Funds

Following are the sources of funds and their figures for latest five years:   2005 2006 2007 2008 2009General Entrance Fee Fund 270,357,074 270,357,074 270,357,074 270,357,074

281,457,074

           Members' Protection Fund 17,371,648 19,187,644 19,855,014 20,852,480 -

           Investors' Protection Fund 12,892,573 14,397,076 10,145,084 11,143,164 12,589,569

           Fees and Subscription          

L ist ing Fee           -Annual List ing Fee 4,417,500 4,680,000 4,815,000 4,980,000 5,135,000 -Addi t ional List ing Fee 21,863,582 38,089,506 54,494,132 46,157,089 63,089,486 - In i t ia l L ist ing Fee 3,841,474 1,413,868 1,200,000 1,700,000 360,000

  30,122,556 44,183,374 60,509,132 52,837,089 68,584,486 Inact ive Membership Fee 2,985,000 3,500,000 7,500,000 7,400,000 7,300,000

52

Trading Fee – LAGA 3,821,917 1,528,444 760,839 1,486,788 264,792 Membership Conversion fee - - 105,000 40,000 10,000 Partnership/Membership Transfer Fee 1,800,000 1,099,750 700,000 800,000 500,000 Other Fees and Subscr ipt ion 210,500 78,000 109,050 109,840 172,120

  8,817,417 6,206,194 9,174,889 9,836,628 8,246,912

  38,939,973 50,389,568 69,684,021 62,673,717 76,831,398

           Other Operating Income          Income from f inancial assets           -Prof i t on Investment and Bank Deposi t 3,012,439 11,382,332 5,613,634 4,746,824 10,801,803 -Gain on sale of assets avai lable for sale 37,245 23,159 504,271 - 10,791,480

  3,049,684 11,405,491 6,117,905 4,746,824 21,593,283 Income from Related Part ies 6,099,368        

-Div idend Income 1,000,000 1,030,000 3,012,500 5,346,236 - -Prof i t on loans from key management personnel - - - 57,664 43,962 - Income from off ices sublet to directors - - - 809,748 1,294,439

  1,000,000 1,030,000 3,012,500 6,213,648 1,338,401 Income from non-f inancial assets           - Income from off ices sublet to members 11,630,589 14,349,177 14,206,571 15,101,558 15,657,028 -Room Transfer Fee - - - - 1,400,000

-From members against services 305,775 280,409 337,514 121,000 - -Old Liabi l i t ies Wri t ten Back - 679,338 380,838 - -

-Miscel laneous 1,566,726 1,215,722 1,020,000 869,950 723,183

  1,566,726 2,175,469 1,738,352 869,950 723,183

           

Long term Loan - - 281,096,108 396,401,219 742,911,722

           

53

Advances, deposit and other receipts 296,241,461 480,698,122 702,573,286 1,005,120,143 1,490,550,040

           Share of Profit of Associated Companies 16,957,873 7,115,039 - 15,685,431 12,987,111

           Long-term investments 39,778,024 51,181,299 65,916,033 48,332,843

88,012,935

           Short-term investments 100,000,000 57,632,125 182,831,757

128,133,590

21,684,360

General Entrance Fund is the main source of revenue which has remained

constant over 4 years and was slightly increased in year 2008-09 due to

Entrance of new members in market of Islamabad Stock Exchange. Long-term

loan was taken from year 2007 which is one of the biggest source of funds in

year 2007, 2008 and 2009. Advances and other receipts are also a big source

of fund taken on account of ISE towers. Long-term investments also

contribute a great deal towards funds of ISE.

54

5.6 Generation of Funds

Funds are generated from all the above sources in the following way:

1. Annual Listing Fee @ Rs.25,000 per annum from each listed

company.

2. Additional Listing Fee @ 0.1% on the increased magnitude of paid-

up capital.

3. Initial Listing Fee @ 0.1% of the paid-up capital being listed by the

Exchange from each of the new listing subject to a maximum of Rs.

1.0 million.

55

4. Trading fee – LAGA (trading Fee- laga in distributed in 3 parts;

once part goes to members protection fund, other to investors

protection fund and last to income of ISE)

5. Inactive Membership Fee @ 100,000.

6. Membership Subscription fee @ Rs.200,000 incase of individual

member.

7. Annual membership fee @ Rs.1,000 in case of individual member.

8. Profits from Bank Deposits

9. Profits on sale of assets available for sale

10. Profit earned on loans given to key management personnel

11. Income from offices sublet to directors

12. Income from offices sublet to members

13. Room Transfer Fee

14. Income earned from members against services

56

5.7 Allocation of Funds

Following are the various places where funds of ISE are allocated and their

figures for last 5 years:

  2005 2006 2007 2008 2009

           Administrative Expense          

Salar ies and benef i ts 7,924,22

5 8,837,221 11,863,5

13 15,370,23

1 21,612,584

Off ice rent 11,550,71

5 12,952,216 14,078,6

73 16,519,86

1 16,524,313

Travel ing and lodging 1,553,05

8 1,139,498 578,1

20 692,89

1 1,197,186 Postage, te lephone and fax

720,306 515,525

345,950

360,634 416,501

Pr int ing and stat ionery 590,44

9 677,451 934,8

97 537,87

3 1,042,462 News papers, books and per iodicals

96,023 104,472

120,399

71,765 55,450

Publ ic i ty and advert isements

80,080 12,500

96,025

733,450 578,400

Audi t fee 100,00

0 150,000 250,0

00 300,00

0 350,000

57

Legal and professional charges

1,784,604 1,170,698

1,802,257

3,103,416 2,428,700

Contract services:          

- Secur i ty 201,60

0 201,600 264,0

00 241,59

7 366,900

- Jani tor ia l 276,00

0 276,000 420,0

00 485,00

0 684,000

- Others - - - 90,47

5 75,691 Repairs and maintenance

458,806 546,523

769,631

751,570 947,694

Seminars, meet ings and entertainment

4,149,015 1,098,850

1,038,283

964,451 1,146,530

Trading technology charges

952,825 1,643,917

3,034,837

3,523,099 3,228,836

Electr ic i ty, gas and water

1,039,881 1,042,301

1,212,194

1,321,895 1,549,578

Insurance 155,43

2 896,466 971,3

15 935,55

9 1,362,554

Membership fee 197,71

0 712,757 1,062,1

36 1,182,74

9 1,046,226

Depreciat ion 6,300,65

6 7,920,008 7,259,3

18 8,309,35

2 11,533,815 Provis ion for bad and doubtful debts

97,829 101,500

661,040

1,228,464 1,689,375

Bank charges 116,58

0 56,767 118,0

75 82,02

9 82,702 Peshawar t rading f loor expenses - 182,772

363,889

129,355 86,642

Demutual izat ion expenses - - -

638,203 3,476,115

Miscel laneous 795,45

4 2,093,349 2,177,8

71 1,004,03

1 752,311

Corporate Responsibi l i ty - - - - 920,000

  39,141,24

8 42,332,391 49,422,4

23 58,577,95

0 73,154,565            

Taxation 5,746,14

8 10,782,42

6 11,541,

198 12,226,6

39 24,052,83

5

           Loss of Associated Companies - -

6,049,524 - -

           Finance Cost and other charges - - - -

16,445,870

Office rent is the biggest place till 2008 where funds are allocated. 23-30%

of funds are allocated in office rent. 20-31 % funds are allocated in salaries

58

and benefits making it the second biggest expense till 2008. Salaries and

benefits were the biggest expense in 2009. Depreciation utilizes almost 14-19

% of the funds. Most of the funds of ISE are allocated in taxation. From

2009, a large portion of fund is also allocated in the finance and other

charges.

6. CRITICAL ANALYSIS OF THE THEORETICAL

CONCEPTS RELATED TO PRACTICAL

EXPERIENCES

During my internship, I have examined the theoretical concepts what I

studied as my curriculum with those being practiced and applied by the ISE.

ISE is a company limited by guarantee and so it has the following features:

Company is without share capital

59

Number of members is fixed by the articles

Membership is transferable subject to the membership criteria as laid

down by the Board

Surplus funds are not distributable to the members in any manner

The funds are used only for the purpose of promoting the objectives of

the company

The income statement of ISE reveals the entire amount has been carried

forward/retained and nothing has been distributed as the ISE is a not for-

profit company and does not have a share capital as such no dividend is

payable to any stakeholder.

Instead of Shareholder’s equity, ISE has funds and the main fund is general

entrance fee fund collected from members when they join the exchange.

ISE is following Companies Ordinance, 1984 and has its own Memorandum

of Association and Articles of Association. The Islamabad Stock Exchange

follows historical cost convention principles except for accounting for

60

available for sale investments and gratuity and compensated absences. The

Finance Department has established a system of internal control.

ISE prepares following financial statements:

1. Balance Sheet

2. Income and Expenditure Account

3. Cashflow Statements

4. Statement of Changes in Funds (in place of equity ISE has funds so ISE

prepares this financial statement in place of statement of changes in

equity)

5. Notes to the Financial Statements

6. Statement of Value Addition

These financial statements are presented in conformity with the approved

accounting standards which comprise of such International Reporting

Standards (IFRS) issued by the International Accounting Board and the

requirements of the Companies Ordinance 1984. These financial statements

are presented in Pakistani Rupees currency.

61

ISE uses accounting software for preparing financial statements. Data in the

accounting software is directly entered in ledger instead of entering in

journal first. ISE has no fixed assets register. ISE doesn’t use any financial

ratios in their reports.0

Fixed assets are stated at cost less their depreciation and depreciation is

charged to income on straight line so as to write off the depreciable amount

of the fixed assets over their estimated useful lives. Provision for doubtful

receivables is made on regular basis.

Revenues or income from various sources are recorded on accrual basis

except for dividend income which is recognized when the company’s right to

receive dividend is established and except for income from bank and

investments which is recognized on a time proportion basis.

Taxation is applied on ISE according to current income tax law and decision

taken by the taxation authorities. ISE regularly makes budgets every year

using the variance method. ISE has both internal and external audits.

62

ISE is following the Code of Corporate Governance. Every year Annual

General Meeting of ISE is held on October 31. Board of Directors of ISE

contains of ten persons, half of which are broker Directors while remaining

half are non-broker directors with Chairman also being the non-broker.

ISE is using a functional departmentalization structure but there is no human

resource department in ISE.

In theory we studied, New York Stock Exchange which is government

regulated through SEC and is also self-regulated. Similarly, ISE is

government regulated through SECP and is also self-regulated.

There is a great inconsistency in the financial statements of ISE during

different periods because ISE is still in growth phase. ISE still have to

develop its market and is in the efforts of doing it .

63

7. FINANCIAL ANALYSIS OF ISE

7.1 Balance Sheet (of Latest 5 Years)

PARTICULARS 2005 2006 2007 2008 2009FUNDS &LIABILITIES Rupees Rupees Rupees Rupees RupeesNON-CURRENT LIABILITIES  Members Protect ion Fee 17,371,648 19,187,644 19,855,014 20,852,480 0Investors Protect ion Fee 12,892,573 14,397,076 10,145,084 11,143,164 12,589,569 Deferred Liabi l i t ies 3,270,545 3,200,174 3,348,685 11,231,205 25,989,945 Long-Term Loan 0 0 281,096,108 396,401,219 742,911,722

64

Advances, Deposi t & other Receipts 256,406,338 454,944,048 653,734,496 948,106,033 1,449,372,572 Total Non-Current Liabil i t ies 289,941,104 491,728,942 968,179,387 1,387,734,101 2,230,863,808           CURRENT LIABILITIES          Advances & Deposi ts 39,835,123 25,754,074 48,838,790 57,014,110 41,177,468 Accrued & other Liabi l i t ies 11,453,316 36,472,497 55,818,507 29,664,743 101,231,360

Accrued markup 0 0 0 0 34,305,127 Current portion of long term loan 0 0 0 0 222,873,517 Provis ion for Taxat ion 4,209,099 4,371,224 0 0 0Total Current Liabil i t ies 55,497,538 66,597,795 104,657,297 86,678,853 399,587,472 TOTAL LIABILTITIES 345,438,642 558,326,737 1,072,836,684 1,474,412,954 2,630,451,280            FUNDS          General Entrance Fee 270,357,074 270,357,074 270,357,074 270,357,074 281,457,074 Surplus on re-measurement of Investments 874,228 2,669,589 14,246,664 3,086,255

(9,043,762)

Accumulated/(Def ic i t ) Surplus 43,903,912 77,253,839 105,000,043 143,366,218 123,432,318 TOTAL FUNDS 345,399,435 383,865,222 419,603,879 416,809,547 395,845,630            TOTAL LIABILITIES AND FUNDS 690,838,077 942,191,959 1,492,440,563 1,891,222,501 3,026,296,910

ASSETSNON-CURRENT ASSETS    Fixed Term Investments 386,844,611 562,286,730 1,086,893,187 1,567,912,127 2,745,922,534Long Term Investments 39,778,024 51,181,299 65,916,033 48,332,843 88,012,935Long term advances and receivables 3,866,901 6,623,517 5,332,083 6,712,744 9,562,179Deferred Taxat ion 2,344,143 2,956,340 1,201,402 0 14,523,756Total Non-Current Assets 432,833,679 623,047,886 1,155,342,705 1,622,957,714 2,858,021,404     CURRENT ASSETS    Account Receivables 5,031,913 5,277,389 10,650,775 23,016,259 34,997,401Advances, Deposi ts, Prepayments 8,798,170 13,026,233 11,636,337 25,579,905 38,988,143Short Term Investment 100,000,000 57,632,125 182,831,757 128,133,590 21,684,360Advances tax-net 0 0 1,895,383 9,373,135 21,557,352Bank Balances-Funds 30,258,066 31,915,933 20,673,782 20,492,747 4,225,158Cash & Bank Balances 83,652,028 177,707,673 75,409,726 61,669,151 46,823,092Total Current Assets 227,740,177 285,559,353 307,097,760 268,264,787 168,275,506     TOTAL ASSETS 660,573,856 908,607,239 1,462,440,465 1,891,222,501 3,026,296,910

65

Graphs of Key Figures (in millions) of Balance Sheet

Fixed Assets

386.84562.29

1,086.90

1,567.92

2,745.92

-

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

2005 2006 2007 2008 2009

Long Term Investments

39.7851.18

65.92

48.34

88.01

-

20.00

40.00

60.00

80.00

100.00

2004-05 2005-06 2006-07 2007-08 2008-09

66

Current Assets

227.74

285.56 303.10268.30

168.28

-

50.00

100.00

150.00

200.00

250.00

300.00

350.00

2005 2006 2007 2008 2009

Total Funds

315.14350.27

389.59416.81 395.84

-50.00

100.00150.00200.00250.00300.00350.00400.00450.00

2005 2006 2007 2008 2009

Current Liabilities

55.49 66.60104.66 86.68

399.59

-50.00

100.00150.00200.00250.00300.00350.00400.00450.00

2005 2006 2007 2008 2009

67

Long-Term Liabilities

289.94492.80

968.17

1,388.46

2,230.86

-

500.00

1,000.00

1,500.00

2,000.00

2,500.00

2005 2006 2007 2008 2009

68

7.2 Income Statement (of Latest 5 Years)

PARTICULARS 2005 2006 2007 2008 2009  Rupees Rupees Rupees Rupees RupeesINCOME          

Fee and subscr ipt ion 38,939,973 50,389,568 69,684,021

62,673,717

76,831,396

Other Operat ing Income 17,552,774 28,960,137 25,075,328 30,811,616 40,711,89

5

Total Income 56,492,747 79,349,705 94,759,349

93,485,333 117,543,291

           EXPENDITURE          

Administrat ive Expenses (39,141,248) (42,332,391)

(49,422,423)

(58,577,950)

(89,600,437)

17,351,499 37,017,314 45,336,926

34,907,383 27,942,854

         Provis ion for impairment in the value of investment - - - -

(9,358,029)

Share of Prof i ts of Associated Companies 16,957,873 7,115,039

(6,049,524)

15,685,431

12,987,111

Surplus for the year before taxation 34,309,372 44,132,353

39,287,402

50,592,814 31,571,936

69

           

Taxat ion (5,746,148) (10,782,426)

(11,541,198)

(12,226,639)

(24,052,835)

Surplus for the year after taxation 28,563,224 33,349,927

27,746,204

38,366,175 7,519,101

           Accumulated surplus brought forward 15,340,688 43,903,912

77,253,839

105,000,043

115,913,215

           Accumulated Surplus carried forward 43,903,912 77,253,839

105,000,043

143,366,218 123,432,316

Graphs of Key figures (in millions) of Income Statement

Total Revenue

56.49

79.3594.76 93.48

117.54

-

20.00

40.00

60.00

80.00

100.00

120.00

140.00

2005 2006 2007 2008 2009

70

Total Expenses

39.14 42.3349.42

58.57

73.15

-

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

2005 2006 2007 2008 2009

Profit before Taxation

34.31

44.1339.29

50.60

31.57

-

10.00

20.00

30.00

40.00

50.00

60.00

2005 2006 2007 2008 2009

Profit after Taxation

28.5633.35

27.75

38.36

7.52

-5.00

10.0015.0020.0025.0030.0035.0040.0045.00

2005 2006 2007 2008 2009

71

Accumulated Profit

43.90

77.25

105.00

143.36

123.43

-

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

2005 2006 2007 2008 2009

7.3 Ratio Analysis

Note: Formulas used to calculate the following ratios are given in Annexure

III.

7.3.1 Liquidity Ratios

Liquidity Ratios 2005 2006 2007 2008 2009Working Capi tal ( in mi l l ion) 172.25 218.96 198.44 181.62 -231.31

Current Rat io 4.10 4.29 2.90 3.10 0.42Quick rat io 3.45 3.61 2.57 2.46 0.26Operat ion Cashf low Rat io -0.31 0.47 0.62 0.73 -0.06

Working Capital

-300

-200

-100

0

100

200

300

2004-05 2005-06 2006-07 2007-08 2008-09

Current Ratio

0

1

2

3

4

5

2004-05 2005-06 2006-07 2007-08 2008-09

72

Quick Ratio

0

1

2

3

4

2004-05 2005-06 2006-07 2007-08 2008-09

Operating Cashflow

-0.4

-0.2

0

0.2

0.4

0.6

0.8

2004-05 2005-06 2006-07 2007-08 2008-09

Liquidi ty Rat ios Graphs

From liquidity ratios we can see that Islamabad stock exchange does not have

enough ability to meet its short-term obligations. Current Liabilities are a lot

more than their current assets which have led to great decrease in current

ratio, quick ratio and working capital in 2009. This is due to non-balance

between current and fixed assets. ISE has acquired a giant fixed asset i .e. ISE

towers but is not maintaining a proper balance between current and non-

current assets as most of economic resources of ISE are spend on that asset.

Operating Cashflow Ratio also declined in 2009 as the operation cashflow

was negative mainly due to transfer of cashflows to establishment of

Settlement Protection Fund.

7.3.2 Solvency Ratios

Solvency Ratios 2005 2006 2007 2008 2009

73

Debt to Total Assets Rat io 0.52 0.62 0.73 0.78 0.87Long-Term Debt Rat io 0.44 0.54 0.66 0.73 0.74Debt to Funds Rat io 1.10 1.60 2.75 3.54 6.65Cash Flow to Total Debt Rat io -0.05 0.06 0.06 0.04 -0.01

ISE has been greatly financed by debt which can be seen from solvency

ratios. This debt was also taken to finance the project of ISE building.

However, debt ratio has always remained less than 1 which means the firm

doesn’t has more debts than its assets. Long-term debt is increasing every

Debt to Total Assets Ratio

0

0.2

0.4

0.6

0.8

1

2004-05 2005-06 2006-07 2007-08 2008-09

Long-Term Debt Ratio

0

0.2

0.4

0.6

0.8

2004-05 2005-06 2006-07 2007-08 2008-09

Debt to Funds Ratio

0

2

4

6

8

2004-05 2005-06 2006-07 2007-08 2008-09

Cashflow to Total Debt Ratio

-0.1

-0.05

0

0.05

0.1

2004-05 2005-06 2006-07 2007-08 2008-09

Solvency Ratios Graphs

74

year because ISE is increasing its long-term debts for the construction of

towers. Debt to Funds ratio is greatly increasing as ISE is aggressively

financing its growth with debt. It seems that ISE cannot cover its total debt

with yearly operating cashflow as its operating cashflows were negative in

2005 and 2009 and very low in other periods.

7.3.3 Activity Ratios

Activity Ratios 2005 2006 2007 2008 2009Asset Turnover 0.05 0.05 0.04 0.03 0.02Current Assets Turnover 0.11 0.15 0.16 0.16 0.27Working Capi tal Turnover 0.16 0.20 0.23 0.25 -2.37Accounts Receivables Turnover 1.07 7.70 5.95 2.78 2.03

Asset Turnover

0

0.010.02

0.03

0.040.05

0.06

2004-05 2005-06 2006-07 2007-08 2008-09

Current Assets Turnover

0

0.050.1

0.15

0.20.25

0.3

2004-05 2005-06 2006-07 2007-08 2008-09

Working Capital Turnover

-3

-2.5

-2

-1.5-1

-0.5

0

0.5

2004-05 2005-06 2006-07 2007-08 2008-09

Accounts Receivables Turnover

0.001.002.003.004.005.006.007.008.009.00

2004-05 2005-06 2006-07 2007-08 2008-09

75

Activi ty Rat ios Graphs

Asset Turnover of ISE is decreasing meaning that ISE is not efficiently

utilizing its assets for revenue generation. However, due to decrease in

current assets, current assets turnover has been increased greatly in year

2009. Fixed assets have greatly increased which led to the decrease of total

assets turnover. Working capital turnover was almost constant for 4 years but

greatly declined in 2009 as the working capital was negative. Accounts

Receivables Turnover seems to be decreasing which means that credit policy

of ISE need to be stricken.

7.3.4 Profitability Ratios

Profitabil i ty Ratios 2005 2006 2007 2008 2009Gross Prof i t Rat io 60.74% 55.61% 41.46% 54.13% 26.86%Prof i t Margin 77.71% 97.35% 110.81% 153.36% 105.01%Return on Assets 6.65% 8.50% 7.18% 7.58% 4.08%Return on Funds 13.93% 22.05% 26.95% 34.39% 31.18%

Gross Profit Ratio and Profit Margin of ISE has been decreased in 2008-09

due to increase in expenses and some provisions made which decreased the

profitability of ISE. Financial costs and charges were also introduced in

76

income statement of ISE in 2008-09. However, it is expected that in year

2009-10, the new towers of ISE will start generating revenue which will

Gross Profit Ratio

0.00%

20.00%

40.00%

60.00%

80.00%

2004-05 2005-06 2006-07 2007-08 2008-09

Profit Margin Ratio

0.00%

50.00%

100.00%

150.00%

200.00%

2004-05 2005-06 2006-07 2007-08 2008-09

Return on Assets

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

2004-05 2005-06 2006-07 2007-08 2008-09

Return on Funds

0.00%

10.00%

20.00%

30.00%

40.00%

2004-05 2005-06 2006-07 2007-08 2008-09

Profi tabi l i ty Rat ios Graphs

cover most of the costs of ISE including financial charges. Return on Assets

was decreased because of the great increase in fixed assets which was not

much contributing towards earning income. Return on Funds ratio is good.

This is mainly because ISE is not-for-profit Company and its funds are not

distributed among any stakeholders.

77

7.3.5 Market Performance Indicators

Market Performance 2005 2006 2007 2008 2009ISE Network Index 11541.39 11528.16 11962.36 11016 6471.06ISE 10 Index 2432.59 2633.9 2716 2749.64 1713.03Total Turnover of Shares ( in mi l l ion) 666 396.24 236.85 569 272.97Average Dai ly Turnover of Shares ( in mi l l ion) 3 1.5 0.96 2.31 1.11

Market performance of a stock exchange is usually measured by a stock

market index. ISE has two stock indexes:

ISE Network Index

0 5000 10000 15000

2004-05

2006-07

2008-09

ISE 10 Index

0 1000 2000 3000

2004-05

2006-07

2008-09

Indexes Graphs

(i) ISE-Network Index is a price weighted index which is calculated

on basis of price of shares. It has a base date of November 20, 1995

(ii) ISE-10 index is a capitalization weighted index calculated on basis

of market capitalization (market capitalization is the total value of a

company’s equity capital at the current market price) of ten stocks

78

in the index. It has a base date of December 31, 2002 and a value of

1000.

Total Turnover of Shares

0 200 400 600 800

2004-05

2006-07

2008-09

Average Daily Turnover of Shares

0 1 2 3 4

2004-05

2006-07

2008-09

Turnover of Shares Graph

Market indexes and other indicators of market performance show that stock

exchange didn’t performed well in year 2008-09 as compared to previous

years. This bad performance was mainly a result of dried market conditions

and high volatility of market of the country during year 2008-09.

79

80

7. 4 HORIZONTAL ANALYSIS OF BALANCE SHEET

PARTICULARS 2005 2006 2007 2008 2009FUNDS & LIABILITIES % % % % %NON-CURRENT LIABILITIESMembers Protect ion Fee 83.31% 92.02% 95.22% 100.00% 0.00%Investors Protect ion Fee 115.70% 129.20% 91.04% 100.00% 112.98%Deferred Liabi l i t ies 29.12% 28.49% 29.82% 100.00% 231.41%Long-Term Loan - - - 100.00% 187.41%Advances, Deposi t & other Receipts 27.04% 47.98% 68.95% 100.00% 152.87%Total Non-Current Liabi l i t ies 20.89% 35.43% 69.77% 100.00% 160.76%

CURRENT LIABILITIESAdvances & Deposi ts 69.87% 45.17% 85.66% 100.00% 72.22%Accrued & other Liabi l i t ies 38.61% 122.95% 188.16% 100.00% 341.25%Total Current Liabi l i t ies 64.03% 76.83% 120.74% 100.00% 461.00%TOTAL LIABILTITIES 23.43% 37.87% 72.76% 100.00% 178.41%

FUNDSGeneral Entrance Fee 100.00% 100.00% 100.00% 100.00% 104.11%Surplus on re-measurement of Investments 28.33% 86.50% 461.62% 100.00% (293.03)%Accumulated Surplus 30.62% 53.89% 73.24% 100.00% 86.10%TOTAL FUNDS 75.61% 84.04% 93.47% 100.00% 94.97%

TOTAL LIABILITIES AND FUNDS 34.93% 48.04% 77.33% 100.00% 160.02%

Graph 1 of Key Values of Horizontal Analysis of Balance Sheet

81

0.00%50.00%

100.00%150.00%200.00%250.00%300.00%350.00%400.00%450.00%500.00%

2004-05

2005-06

2006-07

2007-08

2008-09

Non-Current Liabilities

Current Liabilities

Total Funds

7.4.1 Non-Current Liabilities (Horizontal Analysis)

Member Protection Fund was transferred to Settlement Protection Fund Trust

due to which its amount is zero in the year 2009 otherwise; its amount

increased every year due to profit earned on member protection funds bank

accounts. Amount of Investors Protection Fund also increased every year due

to profit earned on Investor Protection Funds bank accounts except in 2005

when Rs.2,877,142 were paid to ‘affectees of default’ and in year 2007 when

Rs.4,844,748 per paid to affectees. Deferred liabilities increased greatly due

to slight increase in staff retirement gratuity and great increase in deferred

taxation from 2008. ISE didn’t have taken long-term loan before 2007 but it

was required in year 2007 for the construction of ISE towers. In 2007, ISE

82

took term finance loan from Bank Alfalah Limited of Rs.700 million. In

2008, ISE obtained term finance loan from UBL of Rs.1,100 million from

which it prepaid the loan of Bank Alfalah. ISE took further loan of Rs.569

million for construction of ISE towers in 2009 due to which long-term loan

of ISE was greatly increased. Deposits and other receipts increased every

year on account of receipts from others which represents the amount of down

payments and installments received from parties against sub-lease agreement.

ISE has entered into sub-lease agreement with many parties for sub-lease of

various parts of ISE towers.

7.4.2 Current Liabilities (Horizontal Analysis)

Head of clearing house margin from members against exposure increased in

2005 (which was then Rs.12,371,362), 2007 (which was then Rs.22,943,335)

and 2008 (which was Rs.40,709,335) which led to increase in advances and

deposits in those years. Accrued and other liabilities were increased

primarily because of increase in portion of proceeds from sale of assets of

members in default (which was Rs.35,719,531 in 2006, Rs.3,324,157 in 2007

83

and Rs.12,495,632 in 2009), accrued expenses (which was Rs.70,214,714 in

2009) and withholding tax payable (which was Rs.12,681,019 in 2009). Some

of the portion of long-term loan was taken to current liabilities for the start

of repayment of long term loan which have increased current liabilities of

ISE in 2009.

7.4.3 Funds (Horizontal Analysis)

General Entrance Fee remained constant for four years but as Soneri Bank

was finally inducted as member of ISE in 2009 and due to some other

changes in membership of ISE, General Entrance Fee Fund was slightly

increased in 2009. Surplus on re-measurement of investments was recorded

on Rs.14,246,664 in 2007 which led to its great increase but in 2009

Rs.9,043,762 was recorded as deficit on re-measurement of investments.

Accumulated surplus was decreased in 2009 because of transfer of

Rs.19,933,900 to Settlement Protection Fund.

PARTICULARS 2005 2006 2007 2008 2009ASSETS % % % % %NON-CURRENT ASSETSFixed Term Investments 24.67% 35.86% 69.32% 100.00% 175.13%Long Term Investments 82.30% 105.89% 136.38% 100.00% 182.10%Long term advances and receivables 57.61% 98.67% 79.43% 100.00% 142.45%

84

Total Non-Current Assets 26.67% 38.39% 71.19% 100.00% 176.10%

CURRENT ASSETSAccount Receivables 21.86% 22.93% 46.28% 100.00% 152.06%Advances, Deposi ts, Prepayments 34.39% 50.92% 45.49% 100.00% 152.42%Short Term Investment 78.04% 44.98% 142.69% 100.00% 16.92%Bank Balances-Funds 147.65% 155.74% 100.88% 100.00% 20.62%Cash & Bank Balances 135.65% 288.16% 122.28% 100.00% 75.93%Total Current Assets 84.89% 106.45% 114.48% 100.00% 62.73%

TOTAL ASSETS 34.93% 48.04% 77.33% 100.00% 160.02%

Graph 2 of Key Values of Horizontal Analysis of Balance Sheet

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

160.00%

180.00%

200.00%

2004-05 2005-06 2006-07 2007-08 2008-09

Non-Current Assets

Current Assets

7.4.4 Non-Current Assets (Horizontal Analysis)

Fixed Assets have greatly increased every year and especially from year 2007

because of construction of ISE towers. Long-term investments increased in

2006 due to increase in investment in associate National Commodity

Exchange Limited. In other four years long term investments also increased

except in year 2008 even though the ownership of ISE in associates remained

85

same. This was mainly due to classification of ISE investment in CDC as

associate form that was formerly classified as available for sale in short-term

assets on December 31, 2007 due to change in the ISE’s representation on the

Board of Directors of CDC. Long-term advances were increased in 2006 due

to increase in advances to staff which grew from Rs.66,901 to Rs.2,623,517.

In 2007, these advances decreased to Rs.1,332,083 which led to decrease in

long term advances and receivables. In 2008, this amount grew to

Rss.2,712,744 and in 2009 this amount suddenly grew to Rs.5,562,179 on

account of advance of Rs.2,235,294 (@5% per annum) paid to Managing

Director pursuant to the approval of SECP.

7.4.5 Current Assets (Horizontal Analysis)

Deposits and other receipts increased due to advances received on account of

sale of rooms in ISE towers. Short-term investments, bank balances and cash

decreased as they were utilized in the construction of ISE towers. In short-

term investments, Askari Income Fund was fully utilized in 2009 and other

86

reason of decrease in short-term investments is due to change in

classification of ISE investment in CDC.

87

7.5 HORIZONTAL ANALYSIS OF INCOME STATEMENT

PARTICULARS 2005 2006 2007 2008 2009% % % % %

INCOMEFee and subscr ipt ion 62.13% 80.40% 111.19% 100.00% 122.59%Other Operat ing Income 56.97% 93.99% 81.38% 100.00% 132.13%Total Income 60.43% 84.88% 101.36% 100.00% 125.73%

EXPENDITUREAdministrat ive Expenses 66.82% 72.27% 84.37% 100.00% 152.96%

Share of Prof i ts of Associated Companies 108.11% 45.36% (38.57)% 100.00% 82.80%Surplus for the year before taxat ion 67.81% 87.23% 77.65% 100.00% 62.40%

Taxation 47.00% 88.19% 94.39% 100.00% 196.72%Surplus for the year after taxation 74.45% 86.93% 72.32% 100.00% 19.60%

Accumulated surplus brought forward 14.61% 41.81% 73.58% 100.00% 110.39%

Accumulated Surplus carried forward 30.62% 53.89% 73.24% 100.00% 86.10%

Graph of Key Values of Horizontal Analysis of Income Statement

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

160.00%

180.00%

2004-05

2005-06

2006-07

2007-08

2008-09

Income

Administrative Expenses

88

7.5.1 Income (Horizontal Analysis)

The main reason in the rise of the revenue in 2007 and 2009 has been the

substantial increase in the additional listing fee which was Rs.54,494,132 in

2007 and Rs.63,089,486 in 2009 as compared to Rs.46,157,089 in 2008.

Other Operating income was increased in 2006 and 2009 because of increase

in profit on investment and bank deposits which was Rs.11,382,332 in 2006

and Rs.10,801,803 in 2009. Other reasons for increase in other operating

income in 2009 were room transfer fee taken from members on account of

new rooms in ISE towers and gain earned on sale of available for sale

investments. Other Operating Income was also increased in 2008 due to

income from offices sublet to members was increased.

7.5.2 Expenditure (Horizontal Analysis)

Administrative expenses are constantly rising over every period and had a

sharp increase in year 2009. The reason of increase in these expenses was

increase in expenditures on account of salary and benefits head, travel and

89

lodging head and printing and stationery head in 2009. Other reasons for

increase in expenses of ISE in 2009 were:

1. ISE also had to pay a penalty of Rs.200,000 to Competition

Commission of Pakistan for imposing trading curbs or price floor in

August 2008 (ISE took the initiative in paying the fine. KSE and LSE

haven’t until now paid the fine).

2. ISE donated Rs.920,000 to charity.

3. ISE had to pay mark-up of Rs.15,665,982 on deposits for office space

in ISE towers.

In other time period, administrative expenses increased due to increase in

salaries and benefits, audit fee, depreciation, demutualization expenses, etc.

7.5.3 Surplus (Horizontal Analysis)

Surplus for the year 2009 before taxation greatly decreased due to increase in

administrative expenses, decrease in share of profits of associated companies

and provision for impairment in the value of investment. Taxation was

greatly increased which led to the decrease in surplus for the year after

90

taxation. Accumulated surplus brought forward in 2009 was increased but due

to transfer of Rs.27,453,003 to Settlement Protection Fund, accumulated

surplus carried forward was decreased.

7.6 VERTICAL ANALYSIS OF BALANCE SHEET

PARTICULARS 2005 2006 2007 2008 2009FUNDS &LIABILITIES % % % % %NON-CURRENT LIABILITIESMembers Protect ion Fee 2.51% 2.04% 1.33% 1.10% 0.00%Investors Protect ion Fee 1.87% 1.53% 0.68% 0.59% 0.42%Deferred Liabi l i t ies 0.47% 0.34% 0.22% 0.59% 0.86%Long-Term Loan 0.00% 0.00% 18.83% 20.96% 24.55%Advances, Deposi t & other Receipts 37.12% 48.29% 43.80% 50.13% 47.89%

91

Total Non-Current Liabi l i t ies 41.97% 52.19% 64.87% 73.38% 73.72%

CURRENT LIABILITIESAdvances & Deposi ts 5.77% 2.73% 3.27% 3.01% 1.36%Accrued & other Liabi l i t ies 1.66% 3.87% 3.74% 1.57% 3.35%Total Current Liabi l i t ies 8.03% 7.07% 7.01% 4.58% 13.20%TOTAL LIABILTITIES 50.00% 59.26% 71.88% 77.96% 86.92%

FUNDSGeneral Entrance Fee 39.13% 28.69% 18.12% 14.30% 9.30%Surplus on re-measurement of Investments 0.13% 0.28% 0.95% 0.16% -0.30%Accumulated/(Def ic i t ) Surplus 6.36% 8.20% 7.04% 7.58% 4.08%TOTAL FUNDS 50.00% 40.74% 28.12% 22.04% 13.08%

TOTAL LIABILITIES AND FUNDS 100.00% 100.00% 100.00% 100.00% 100.00%

Graph 1 of Key Values of Vertical Analysis of Balance Sheet

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

2004-05 2005-06 2006-07 2007-08 2008-09

Total Funds

Current Liabilities

Non-Currnt Liabilities

7.6.1 Non-Current Liabilities (Vertical Analysis)

From the liabilities side, non-current liabilities hold a great portion due to

long-term loan taken for construction of towers and mainly due to long-term

advances and other receipts taken on account of sale of floors and rooms of

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ISE towers. Every year non-current liabilities portion in total liabilities and

funds increased till i t reached to 73%. Member Protection Fee Fund and

Investor Protection fee Fund hold less than 3 % in total funds and liabilities.

7.6.2 Current Liabilities (Vertical Analysis)

There is no balance between non-current and current liabilities. Current

Liabilities hold almost 4 to 13 % of the total funds and liabilities which

means that there is no working capital management by ISE.

7.6.3 Funds (Vertical Analysis)

The ISE is a non-share capital company. The sponsors’ equity is represented

by Funds that accumulate to the tune of only 13% of the Liabilities and

Equity section of the balance sheet during the year 2008-09. Portion of funds

has been decreased to 13 % in 2009 from 50% in 2005 which is again not a

healthy sign for ISE. This means ISE has too many liabilities which can

create problems in future.

PARTICULARS 2005 2006 2007 2008 2009ASSETS % % % % %NON-CURRENT ASSETSFixed Term Investments 58.56% 61.88% 74.32% 82.90% 90.74%Long Term Investments 6.02% 5.63% 4.51% 2.56% 2.91%

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Long term advances and receivables 0.59% 0.73% 0.36% 0.35% 0.32%Deferred Taxation 0.35% 0.33% 0.08% 0.00% 0.48%Total Non-Current Assets 65.52% 68.57% 79.00% 85.82% 94.44%

CURRENT ASSETSAccount Receivables 0.76% 0.58% 0.73% 1.22% 1.16%Advances, Deposits, Prepayments 1.33% 1.43% 0.80% 1.35% 1.29%Short Term Investment 15.14% 6.34% 12.50% 6.78% 0.72%Advances tax-net 0.00% 0.00% 0.13% 0.50% 0.71%Bank Balances-Funds 4.58% 3.51% 1.41% 1.08% 0.14%Cash & Bank Balances 12.66% 19.56% 5.16% 3.26% 1.55%Total Current Assets 34.48% 31.43% 21.00% 14.18% 5.56%

TOTAL ASSETS 100.00% 100.00% 100.00% 100.00% 100.00%

Graph 2 of Key Values of Vert ical Analysis of Balance Sheet

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

2004-05 2005-06 2006-07 2007-08 2008-09

Current Assets

Non-Current Assets

7.6.4 Non-Current Assets (Vertical Analysis)

The vertical analysis reveals that significant portion of the Balance Sheet

comprise of Fixed Assets. Because of construction of the new building of the

ISE, the capital work in progress which is the major part of Fixed Assets is

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mounting rapidly. Fixed assets comprise almost 55-90 % of the balance sheet.

Due to which non-current assets have the largest portion of balance sheet.

7.6.5 Current Assets (Vertical Analysis)

Current assets holding in balance sheet seem to be reduced every year and are

left to only 5-6 % of balance sheet which is even less than the portion of

current liabilities which is 13 % of the total balance sheet. This is a clear

sign than ISE can face liquidity problems.

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7.7 VERTICAL ANALYSIS OF INCOME STATEMENT

PARTICULARS 2005 2006 2007 2008 2009% % % % %

INCOMEFee and subscr ipt ion 68.93% 63.50% 73.54% 67.04% 65.36%Other Income 31.07% 36.50% 26.46% 32.96% 34.64%Total Income 100.00% 100.00% 100.00% 100.00% 100.00%

EXPENDITUREAdministrat ive Expenses 69.29% 53.35% 52.16% 62.66% 76.23%Operat ing Prof i t 30.71% 46.65% 47.84% 37.34% 23.77%

Share of Prof i ts of Associated Companies 30.02% 8.97% -6.38% 16.78% 11.05%Prof i t for the year before taxat ion 60.73% 55.62% 41.46% 54.12% 26.86%

Taxat ion 10.17% 13.59% 12.18% 13.08% 20.46%Surplus for the year after taxation 50.56% 42.03% 29.28% 41.04% 6.40%

Accumulated surplus brought forward 27.16% 55.33% 81.53% 112.32% 98.61%

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Accumulated Surplus carried forward 77.72% 97.36% 110.81% 153.36% 105.01%

Graph 1 of Key Values of Vert ical Analysis of Income Statement

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

2004-05

2005-06

2006-07

2007-08

2008-09

Other Income

Fee and subbscription

Graph 2 of Key Values of Vertical Analysis of Income Statement

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

2004-05

2005-06

2006-07

2007-08

2008-09

Operating Profit

Administrative Expenses

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7.7.1 Income (Vertical Analysis)

The vertical analysis of Income Statement divulges that major segment of the

Income Statement consist of Fee & Subscriptions for the studied five years

period i.e. 2005-2009, contributes almost 64% to 74% in the gross revenues

during the past five years. If we see the expenditure portion for the above

mentioned period, the ranges from 53% to 76% of the gross revenue each

year during last five years. Increase in expenses consumed a large portion of

total income in year 2009.

7.7.2 Expenditure (Vertical Analysis)

The expenditures in comparison to the income have been curtailed. There is

an increase in portion of expenditure in income statement every year which

means expenses need to be controlled. Operating profit has been decreased to

23% of the total income due to increase in expenditure. Portion of taxation in

operating income is also increasing every year.

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99

7.8 ORGANIZATIONAL ANALYSIS WITH COMPETITORS

The ISE belongs to the securities market industry in Pakistan wherein

services are provided to members, listed companies and investors. The

present securities market industry comprises of three Stock Exchanges viz.

Karachi Stock Exchange, Lahore Stock Exchange and Islamabad Stock

Exchange which provide facilities to the listed companies to raise capital by

enlistment of shares at stock exchanges, investors may sell and purchase

shares in the stock exchange and the members provide services to the

investors for consideration of their brokerage/commission.

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The Karachi Stock Exchange was incorporated in 1949. The Lahore Stock

Exchange was established in 1970 whereas Islamabad Stock Exchange was

established in 1992. The KSE which is situated at Karachi, the economic and

financial hub of Pakistan is the biggest stock exchange of the country and is

totally dominant in all three stock exchanges Most of the financial sector is

based at Karachi. Daily trading on the KSE is 155 times that of the Islamabad

bourse, according to Amjad Iqbal, head of quotations at the Islamabad Stock

Exchange. Also, international portfolio investment also routes from KSE. The

total turnover of shares of KSE was approximately 17 billion in 2008-09. On

the other hand Lahore which is the host city of Lahore Stock Exchange is the

second largest city of Pakistan and also lies on numbers two in economic and

trade terms after Karachi. The total turnover of shares of LSE was 1.5 billion

in 2008-09.

Then there comes the number of Islamabad Stock Exchange. ISE cannot

compete with KSE and LSE and the trade volumes of the ISE remain at

lowest level. The total turnover of shares of the ISE was in the range of 0.16

billion in 2008-09. As such the ISE is positioned at a very low profile as

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compared to other Exchanges. Trade transaction fee is the major source of

income for a stock exchange but due to low trade volumes ISE cannot

generate as much income as KSE and LSE can.

Listing Fees are also a great source of income for stock exchanges of

Pakistan. ISE also has less listed companies than KSE and LSE which has

reduced income of ISE. There were only 261 companies listed in ISE in year

2009, while KSE had 652 companies listed and LSE had 514 companies

listed. To increase listings, ISE has introduced certain incentives such as one

time waiver of listing fee for already listed securities, lesser reporting

requirements and e-filing of annual accounts and price sensitive information,

etc., instead of physically furnishing material in bulk quantities.

  KSE LSE ISEParticular ( in thousands)      

Current Assets 2,529,49

9 1,432,51

2 168,27

5

Non-current Assets 1,336,14

0 921,33

3 2,858,02

1

Total Assets 3,865,63

9 2,353,84

5 3,026,29

6        

Current Liabil i t ies 619,81

3 980,55

8 399,58

7

Non-current Liabil i t ies 118,95

2 169,69

9 2,230,86

3

Total Liabil i t ies 738,76

5 1,150,25

7 2,630,45

0

Total Funds 3,126,87

4 1,203,58

8 395,84

5        

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Net Income 314,08

5 104,3

69 7,51

9

Total Assets of KSE-LSE-ISE

KSE

LSE

ISE

Total Liabilities of KSE-LSE-ISE

KSE

LSEISE

Total Funds of KSE-LSE-ISE

KSE

LSE

ISE

Net Income of KSE-LSE-ISE

KSE

LSE

ISE

Graphs of Key Figures of KSE-LSE-ISE

ISE lacks current assets as compared to KSE and LSE but its non-current

assets are more than the other two. So, in terms of total assets ISE isn’t

lagging behind. Also, ISE has more total assets than LSE. However, total

liabilities of ISE are more than KSE and LSE due to big figure of long-term

loan in non-current liabilities. Net income of ISE is a lot less than LSE and

KSE owing to the reasons mentioned above. KSE and LSE have a lot more

funds than ISE due to big surplus earned every year. ISE has capacity to earn

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same level of income only if it had more companies listed and large volumes

of trade.

7.9 FUTURE PROSPECTS OF ISE

The stock exchanges in Pakistan are mutualized entities. However, the

pressure of globalization of the world economies has also imposed changes

and reforms on the securities market of Pakistan so as to bring it at par with

the rest of the exchanges of the world and create attraction for the foreign

investors. With this view, the stock exchanges are soon to be converted into

for profit companies instead of not for profit entities which are the present

legal stature of the exchanges in Pakistan. After demutualization, the stock

exchanges shall not be owned by its members rather these would be owned by

the shareholders.

Demutualization would bring innovations in the systems of the ISE as the

management of the Exchange would be run by the professional exchange

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operators which would bring new technologies and procedures with them for

adoption in the Pakistani environment.

ISE has been successful in creating a huge fixed asset in the form of ISE

Towers. The ISE Towers would not only give a new identity to ISE by

reenergizing and rebranding it to gain its due market share but the cash

inflows in the form of rentals of the abundant offices space that would be

rented out to the commercial entities would also greatly help it to make

investments for business expansion and diversification. The rental income

would be one of the biggest sources of fund for the ISE in next year. Also, it

will reduce the rental expense of ISE.

Approximately 87 % of the trading volume of common listed securities takes

place on the KSE while the combined share of ISE and LSE is only 13 %

which creates certain issues for ISE by making KSE dominant in the market.

Keeping in view this statement, ISE filed a complaint in the Competition

Commission of Pakistan (CCP) to create a National Market System on

November 12, 2007 to solve problems created by dominancy of KSE in

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securities market of Pakistan. This complaint was finally accepted by CCP in

2009 and CCP decided that instead of operating three markets independently,

there should be one market on the lines of unified trading system already in

existence between ISE and LSE. This would help in solving issues like

market fragmentation, liquidity, regulatory, price discovery and transparency,

etc., for ISE.

8. WEAKNESSES OF ISE

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8.1 Weak Working Capital Management

ISE is not maintaining balance between current assets and non-current assets

and also not between current assets and current liabilities. It can face

liquidity and solvency problems in future and is greatly exposed to liquidity

and interest rate risk.

8.2 No Use of Financial Ratios

Finance Department of ISE doesn’t use financial ratios due to which they can

make wrong financing, investing and other important decisions. Financial

Ratios are also not included in their Annual report.

8.3 Bad Presentation of Annual Reports

ISE doesn’t spend much expenditure on annual report and their financial

statements in annual report are not well designed. Annual reports of ISE are

difficult to study as the data is not present in a good form. Due to

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inconsistency in accounting practices, values are restated in annual reports of

different periods

8.4 Increasing Expenses

Expenses of ISE are continuously increasing every year. ISE seem to have no

control over these expenses. These expenses consume the major portion of

the income of ISE.

8.5 No HR & Marketing Department

Human Resource and Customers are the two biggest assets any organization

can have but unfortunately ISE is not focusing on both. There is no HR

department in ISE and no proper HR policies implemented. The only

marketing in ISE is done for the new building and there is no proper

marketing department in ISE. ISE has also has not developed any new market

product and service.

8.6 Weak Internal Control

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ISE has a weak internal control over its members which has increased the

defaults of members in ISE. Almost 14 defaults have occurred in ISE over a

period of 20 years. Regulations over members are quite ineffective and the

system audit of members does not achieve the specified objective. Brokers

also usually have privileged access to corporate announcements due to which

they can benefit more than others.

8.7 Less Listed Companies

Many companies in Pakistan are not seeking listing at ISE and little capital

formation is taking place through ISE. Issuers seem not to have confidence in

ISE and see minimal value addition in listing. Only 261 securities have been

listed till June 30, 2009 in ISE. Listed companies are also not willing to

accept ISE as a frontline regulator and ISE do not have sufficient powers

over listed companies.

8.8 Presence of Market Abuse & Lack of Investor Protection

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There are many market abuses like price manipulation, front running, insider

trading and blank selling, etc., present for the investors of ISE and

unfortunately, ISE do not has the capacity to carry out surveillance and

investigation in market abuse. There is a great lack of investor protection for

investors of ISE. Due to weak internal control of members, non-capacity of

ISE over market abuse, weak risk management and lack of regulations from

SECP for investors’ protection, ISE has been unable to meet the demands of

investors in terms of their protection.

8.9 Large Number of Inactive Brokers

Out of 119, less than 40 members of ISE are active which makes more than

68 % brokers inactive who are unable to contribute any role for development

of ISE. These idle licenses of these inactive brokers directly result in ISE

being a lackluster market according to Rafiuddin Ahmad, ex-Chairman of

ISE. Also the brokers who are registered in ISE are usually new comers with

no market capacity and have slow learning from the market.

8.10 Imperfect Competition

110

The stock exchanges competition in Pakistan is highly imperfect and the

fragmented market conditions are further polarizing the market in favor of

one exchange. There is virtually no competition among the stock exchanges

of Pakistan and KSE is dominant exchange in all market segments. KSE has

the highest number of listed companies and largest share of turnover. Mostly

in case of development of regulations and product, ISE merely follows KSE.

8. 11 Infancy of Technology/ Failure of UTS

In comparison with major capital markets around the World, the functioning

of capital market in ISE is still very much in its infancy and lacks advanced

technology. In 2007, ISE joined hands with LSE to establish Unified Trading

System which didn’t gain much momentum. Upon a market survey,

participants highlighted that the trade execution at UTS is not speedy, spread

expands during bearish trends and it is a little bit expensive at certain slabs

as compared to execution indirectly through the market intermediaries of

main bourse. ISE also isn’t maintaining a good website.

8. 12 Financially Unstable

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ISE is financially quite weak. Unlike international exchanges, it derives most

of its income from listed companies rather than trading charges and other

fees on services. ISE lacks both economic and human capital. ISE has a low

level of capital expenditure. ISE has spent a large portion of its funds on the

new towers project. The inflation in the prices of construction material and

devaluation of the Pak rupee has severely hit the cost estimates of ISE towers

which are making ISE very financially weak at the moment.

9. CONCLUSIONS

In comparison with major stock exchanges around the World, the functioning

of ISE is still very much in its infancy and lacks advanced technology. ISE

still has a long way to go before it is able to achieve its vision and fulfill i ts

goal. It exists in an imperfect competition market which makes it very

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difficult to progress further. However, it should try not to follow other

exchanges and try to bring innovation in itself. It should try to bring new

innovative products in market and improve its functional system. It should

develop strong marketing campaign for its products and services.

Demutualization is expected to bring many changes in ISE like improving

governance structure, providing access to economic and human capital,

generate commercial pressure for growth and development, help change

perception of ISE, etc. Process of Demutualization is greatly in favor of ISE

and it should be soon completed.

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10. RECOMMENDATIONS FOR ISE

10.1 Separate Administration from Finance

There should be a separate department for finance and general administration

in ISE. Finance and administration totally have different functions and

having the same department for both functions will overlap their tasks and

create many problems for staff of ISE.

10.2 Use Financial Ratios

Financial ratios help in identifying problem areas and opportunities within an

organization which makes them an important part in decision making of

finance managers. Finance Department of ISE should stress on the use of

financial ratios in generating reports and making investment and financing

decisions.

10.3 Provide Innovative Products

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ISE should bring innovative products in market to increase their income.

They should also make marketing efforts for their products and services to

attract new investors and more companies to get their securities listed with

ISE.

10.4 Maintain Effective Working Capital Management

Every organization should have a balance between current and non-current

assets and also between current liabilities and non-current liabilities. ISE

needs effective working capital management so that it doesn’t face liquidity

or any solvency problems in the future. The working capital of ISE was

negative in 2009 which is an indicator that ISE is facing liquidity problems.

Management of ISE should overlook this issue.

10.5 Improve Annual Reports

Presentation of annual reports of ISE is not good and they are filled with

errors. They should allocate more funds in producing their annual reports and

should check for errors before finally publishing them.

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10.6 Bring Consistency in Accounting Practices

There doesn’t seem any consistency in accounting practices of ISE. They

tend to change every year. Finance Department should review all their

accounting practices and policies and finally make proper accounting policies

which will reduce restatement of values in financial statements every year.

10.7 Monitor Expenses

Expenses of ISE are moving higher than their income. ISE should try to

control their expenses. Increase in salaries and benefits is a good sign but

other expenses like traveling and lodging should be reduced. One of the

greatest expenses of ISE which is office rent will be reduced because of

construction of ISE towers but the finance charges will be increased owning

to the long-term loan for the construction of towers. ISE should try to keep a

strict check on expenses so they don’t increase from the previous year. 2009

is the only year when ISE has fulfilled its corporate responsibility by giving

donation. ISE should fulfill i ts corporate responsibility every year.

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10.8 Make HR Department

ISE need a HR department to implement HR policies in the organization.

There should be proper reporting lines and division of work among

employees in ISE and job security should be provided to the employees.

10.9 Introduction of New Technology

The securities markets around the globe are being reshaped by three powerful

forces: competition, regulation and technology. ISE should continue its

efforts to introduce new technology for better trading in ISE.

10.10 Improve Web-site

ISE should also improve its web-site and introduce features like those

available on web-sites of KSE and LSE. Investor education section on the

website needs special attention. This could also attract investors which will

increase their trading volumes.

10.11 Use Sharia Complaint forum as Advantage

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The normal trading at ISE in the scrips which are not generally involved on

interest based practices is sharia complaint. A lot of people opt for stock

market investments for the sake of dividends and capital gains by investing

within the confines of Islam. ISE should use this as its advantage. A lot of

banks are marketing their Islamic products and ISE can compete with banks

by marketing its products as Sharia Complaint.

10.12 Improve Internal Control of Brokers

ISE should try to improve the system audit of brokers and its risk

management system so that investors’ confidence could be restored which

will certainly increase their trading volumes.

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11. REFERENCES

1. Ashraf, Mehwish. (2007). Capital Market. Pakistan Economic Survey

2006-07.

2. Ashraf, Mehwish. (2009). Capital Market. Pakistan Economic Survey

2008-09.

3. Competition Commission of Pakistan. (2009). Latest KSE-Order 29-5-

09. Retrieved December 1,2009, from

http://www.mca.gov.pk/Downloads/Latest%20KSE-Order%2029-5-

09.pdf

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4. Expert Committee on Demutualization and Integration/Transformation.

(2004). Report on Demutualization and Integration/Transformation

of Stock Exchanges .

5. Farlex. (2009). The Free Dictionary. Retrieved December 1, 2009, from

http://financial-dictionary.thefreedictionary.com/

6. Hanif, Kamran (2009). SHMA (Information Solutions).

7. Islamabad Stock Exchange. (2009). Islamabad Stock Exchange (Annual

Report 2009).

8. Islamabad Stock Exchange. (2008). Islamabad Stock Exchange (Annual

Report 2008).

9. Islamabad Stock Exchange. (2009). About us, Regulation, FAQs,

Technology. Retrieved December 1, 2009, from

http://www.ise.com.pk

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10. JS Global Online. (2008). Regulatory Framework. Retrieved December

1, 2009 from

http://jsglobalonline.com/3_regularotry_frame_work.php

11. Karachi Stock Exchange Department of Investors Relations. (2004).

Equity Investments - A Guide to Investors, Vol 1.

12. Karachi Stock Exchange. (2009). Karachi Stock Exchange (Annual

Report 2009).

13. Lahore Stock Exchange. (2009). Lahore Stock Exchange (Annual

Report 2009).

14. Qayum, Khalid. and Sharif, Farhan (2009, March). Pakistan Fine Stock

Exchanges for Trading Curbs. Retrieved December 1, 2009 from

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http://www.bloomberg.com/apps/news?

pid=20601087&sid=apdmmGl7ik90&refer=home

15. Raza Nensey, Hasnain. (2009). Portfolio Strategy 2009. Fundamentals,

Semi-Annual Issue – Vol 1 (Jan – Jun 09).

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