INVESTOR GUIDE

GENERAL INFORMATION

The KSE website http://www.kse.com.pk includes a wide range of information about investing, including
information on various market data and Rules & Regulations of the Exchange.

WHY SHOULD I INVEST IN SHARES?

Almost everyone worldwide has an interest in shares, whether they realize it or not. Millions of
people around the world own shares directly. However, many millions more have an indirect stake in
the stock market through pension schemes, life insurance policies, NIT units, and other mutual
funds. All of these, invest in shares traded on the stock market.

Today, increasing number of people own shares around the world, while many more invest in
pension schemes, have an insurance policy, National Saving Schemes (NSS) or another form of
collective savings invested in shares traded in stock markets.

However, investing in shares is different from saving in a bank or National Saving Scheme. There is
more risk - but there is the opportunity for better reward over the longer term. With deposit
accounts, you earn interest on your capital. When you take your cash back, you get back exactly the
same amount that you first deposited (plus the interest it has earned). With shares, you may receive
dividends but when you sell those shares, you might get back more than you bought them for, which
is your reward for taking a risk.

Nevertheless, because shares can go up as well as down in value, it is important to understand that
taking a risk means you might get back lesser than you had invested initially. You can minimize your
risk by investing in different shares or a collective fund. There is, however, the possibility of greater
rewards. Funds invested in equities in the long term (five or more years) have outperformed regular
saving accounts.

You should remember that saving through the stock market should be seen as a long-term
investment. Historically, money invested in shares over the long term (ten or more years) has
almost always outperformed regular saving accounts.

Before investing in stocks and shares, you should understand your own financial position and what
you hope to achieve with your investments. Your regular financial obligations should be protected
and preparation should be made for unexpected expenses.

Having done this, you are ready to consider investing the surplus in stocks and shares. The three
main rationales for owning shares are summarized below:

a. Ownership in a Company - when an individual invests in the stock market, he automatically

becomes a shareholder of that company. As a stockholder, he is entitled to the following benefits: 1)
voting rights; 2) dividends to be declared by the corporation and 3) share of the remaining assets of
the company if it is to be liquidated.

b. Liquidity of Funds - a stock market investor has easier access to funds. Compared to banks, which
have a high minimum balance requirement for deposits and credit, as an individual, you can start an
investment with very low capital, and can expect high yields for your initial investment. You can
always cash in or out your funds anytime, during trading hours, through your broker.

c. Make Money - investors in the stock market make money through dividends and capital
appreciation. When a listed company declares dividends, it increases the shareholders' investing
power. An investor who buys into the company at a low market price and sells it at a higher price
will gain capital appreciation.

WHAT ARE THE RISKS OF INVESTING IN STOCKS?

While it is true, that stock investment is the most volatile of all securities, investors might well recall
the fact that uncertainty, is a permanent feature of any investing perspective. This means that risk
is always a part of any investment. A better attitude would be to limit and manage your risk. A
maximum level of gain or loss should be set, and calculated decisions should be made when this
level is reached.

WHAT IS THE MINIMUM AMOUNT OF INITIAL INVESTMENT?

Some brokers may require a minimum initial investment to open an account depending on their
requirement or may charge or waive other fees depending on the amount you initially invest.

If you are just getting started with a small investment, look for an investment firm that would not
penalize you based on the size of your investment.

The minimum amount of money needed to invest in the stock market depends on the minimum
number of shares to be traded for the stock. The minimum shares will be determined by the
prevailing market price of a particular stock, as each stock, the minimum number of shares to be
traded is fixed, called the market-lot, which depends on the price range of the stock.

The market lot is calculated biannually by NCCPL, keeping the lot size to 500-shares for scrip which
are priced less than Rs. 50 and lot size of 100-shares for scrip priced above Rs. 50

HOW CAN I BUY AND SELL SHARES?

You can buy shares when a company first comes to market - that is at flotation or privatization; or
you can buy them through the stock market once they are in circulation and being traded.

Companies which are about to issue shares often advertise in a daily newspaper. If you decide to
buy these shares, you can seek more information from the company's website or you can fill up the
application form at the affiliated bank or ask the company for a prospectus. Fill out the application
form and submit it with your pay order, at the bank. There is nothing more to pay. Alternatively, you
can go to a stockbroker who will buy them for you.

Most share dealings take place in what is called the secondary market. This is where existing
shareholders sell and new investors buy.

Today, buying shares is easy. You can buy and sell shares by making contact with a stockbroker,
bank or investment adviser, either in person or over the internet or telephone.

HOW CAN I DECIDE WHICH SHARES TO BUY?

1) A stockbroker carries out buying and selling on his propriety accounts and on behalf of his clients
as individuals cannot deal for themselves in the market. A list of stockbrokers is available from the
Stock

Exchange on KSE website www.kse.com.pk. Stockbrokers offer a variety of services but if you know
exactly what you want, simply call the broker for an 'execution only' service and ask them to buy the
shares of your choice. KSE offers three market segments

a) Cash market based on two day clearing and settlement

b) Continuous Funding system (CFS) MKII where cash market's net purchases can be carried over for
another 22 working days

c) Deliverable Future Contracts allow investors to purchase or sale on a forward contract basis
clearing and settlement of these contract takes place on last Friday of the months and new contract
starts on the following Monday Cash settled Future Contract where contract is for 90 days, but
investor has a choice to enter into any of the three contracts that are always open for end of the
month expiry based of cash settlement with under line cash market price of the scrip.

2) After having instructed your broker to buy shares, the broker will draw up contract notes, which
typically are sent to your address or mobile phone number within next 24 hours. This will show
details of the transaction carried out on your behalf.

3) You must send payment for your shares immediately upon receiving your contract note. In June
2007 the Stock Exchange adopted a two-day settlement system called T+2 system, under which
transactions are due for settlement 2 working days after dealing.

4) Upon receipt of payment, the purchased shares are transferred in your name in your Central
Depository Company (CDC) account electronically. You are now the proud owner of a portfolio.

5) At this stage you can sell your shares if you wish. You are now entitled to attend the company's
Annual

General Meeting (AGM). Talk to the other shareholders, especially representatives from the
institutional investors. Just one sizeable disinvestment could make all the difference to the outcome
of your overall operation.

A stockbroker or financial adviser can help you choose which shares to buy, and advice on the best
time to sell.

You will need to decide:

• Will I need the money soon?

• On the other hand, can I leave my money to grow over a number of years?
• Alternatively, Do I want a combination of both?
• How much money can I afford to invest?
• Will I spread this over a small number of shares, or a larger number?
• Do I want to invest directly in shares?
• Do I want shares in blue chip companies, medium-sized companies or new, small companies
(which can be less secure)?
• On the other hand, do I want the relatively safe government backed investment schemes
available through National Saving System (NSS), or Pakistan Investment Bonds (PIBs)?
• Am I interested in indirect ways of investing, through closed end Mutual Funds or through
Term Finance Certificates available at the Stock Exchange?

HOW CAN I FIND A STOCKBROKER?

Stockbrokers today have a range of services tailored for the needs of the growing
numbers of small shareholders. Some operate from the Stock Exchange Building, some
from Queens Road and other similar locations around the city, and some only by
telephone. Most large banks offer share-dealing services as well.

Before choosing a stockbroker, contact several of them and ask how much they will
charge. They expect you to compare their fees with those of other brokers.

An individual investor should choose a retail broker, preferably one that meets his
requirements in terms of services needed. When he lacks the time to analyze individual
companies and stocks, then a full service broker is recommended. In choosing a broker,
the investor should see to it that the broker is a member of good standing at the Karachi
Stock Exchange. It is important that the investor should trust his broker and that he is
satisfied by the services it is giving him, such as market reports, quality of advice
regarding stock selection and timing of purchases and sales, quality of trade executions,
on-time delivery of important documents and other services.

There are three levels of service you can take:

DEALING OR EXECUTION ONLY:

You simply call the broker and instruct them to buy or sell the shares you want. They
carry out your instructions, but will not give you any advice on your decision. You can
always take advice from any other properly qualified financial adviser.

ADVISORY:

With this service you will get the benefit of the broker's expert advice. They will discuss
with you their views on various companies and recommend whether you should buy, sell
or keep hold of your shares. Make sure you feel comfortable with and understand what
your broker is saying to you.

DISCRETIONARY:
The broker will take all the buying and selling decisions, contact you regularly to keep
you informed, and tell you how much your portfolio is worth.

You can get a list of stockbrokers from:

1. The Member's Info section of the Karachi Stock Exchange (www.kse.com.pk)

2. By telephoning the Karachi Stock Exchange on (+21) 111-00-11-22
3. By checking with the local branch of your bank or Investment Company.

A. WHEN YOU BUY

Once you instruct your broker to buy shares, he/she buys the shares for you at the best
price available at the time. By the end of day's trading, you will receive a confirmation-
note. This shows the details of the transaction. Your broker will indicate when he/she
needs to have your money to pay for the shares.

B. WHEN YOU SELL

Immediately you give your broker an order to sell, he/she again negotiates the best
possible price. By the end of day's trading, you receive a contract note confirming the
deal. If you hold the share certificate, you must send this to your broker in accordance
with his/her instructions. If your shares are held in Central Depository Company (CDC),
you will not have a share certificate to worry about.

HOW DO I SAFE KEEP THE ACQUIRED SHARES?

Once you have bought your shares, there are two ways to hold them: as a certificate or
electronically (via CDC account). Your stockbroker can advise which option depending on
individual company's shares.

Traditionally shares have been held in paper form, known as certificates. A share
certificate is a piece of paper that is evidence that you are the owner of the shares. Your
name will appear on the company's share register and this entitles you to receive
directly all the benefit of share ownership including dividends, the right to vote at a
company's annual meeting and to receive company reports twice a year.

If you decide to sell your shares you will normally need to deliver the certificate to the
broker in time for the transaction to be completed.

Today you can choose to hold your shares as an electronic record, receiving a statement
from time to time. This is similar to your bank statement, which shows your cash balance
as held by the bank.

If you choose to hold your shares electronically they are placed in a nominee account
with the Central Depository Company (CDC). These accounts are often run by
stockbrokers who administer the shareholding on your behalf. You do not have a
certificate to keep safe or deliver to your broker in time for the transaction to be
completed. You remain the real owner of the shares and you shall receive the dividends,
even though the shares are registered in the name of the nominee.

Your company also provides you with copies of the company reports and with the right to
vote at general meetings.

When you have bought or sold the shares, your transaction is completed (or settled)
electronically through a service known as National Clearing & Settlement System (NCSS).
This system links banks, stockbrokers and Central Depository Company (CDC).

HOW MUCH DOES IT COST TO BUY SHARES?

Costs of trading in stocks vary according to the level of service you get from your broker.
You should select the service that meets your needs. Execution-only will generally be the
cheapest service. You will pay more for research base advice. The most important figure
to ask your broker is about the minimum commission you will be charged. You should
also ask whether there are any other charges for their services. Ask if there are any
ongoing costs, other than dealing commission, each time you buy or sell.

You should note that you will pay a tax, known as CVT, when you buy shares but not
when you sell. This is currently 0.002% percent of the price of the shares.

The way you choose to hold your shares will also vary in cost. If you decide to hold a
certificate, there may be an additional charge as it will be necessary to transfer it to you
or the new owner.

HOW CAN I KEEP TRACK OF MY SHARES?

Once you have bought shares, you can put them away for a long term or short term, you
can keep an eye on how the price is moving. Details of share prices are published in most
national newspapers every day. The daily price is also available on our website
www.kse.com.pk.

The newspapers' financial pages will comment on companies that are in the news -
perhaps because they have published their profit figures, or they are subject to a
takeover bid, or they have opened a new factory.

Every piece of information about your company helps you build a clear picture of how it
is doing and is expected to do. In addition, there are several specialist magazines to
assist private investors. As a shareholder, and therefore part owner, of a business, you
can contact the company if you want further information. Alternatively, your stockbroker
might keep you informed through a regular newsletter.

HOW ARE SETTLEMENT AND CLEARING DONE?

Clearing and settlement of all stock exchange transactions are provided by National
Clearing Company (NCCPL), which acts as go between for KSE and Central Depository
Company (CDC) which is the share depository company. Shares move between share-
accounts held by the different participant-brokers of the Central Depository Company
(CDC).

Stock market transactions are settled on the second day after the trade. Transfers are
based on trades done at KSE. Shares are transferred on settlement date (T+2) to the
buyer, and the buyer pays the seller through the clearing banks within the same
settlement period. This means that transactions done on Monday must be settled by
Wednesday. Settlements of accounts are done in the clearing house through National
Clearing & Settlement System (NCSS), which is a fully automated electronic settlement
system. Visit NCCPL website for further details regarding clearing and settlement,
www.nccpl.com.pk.

WHAT IS THE CENTRAL DEPOSITORY COMPANY (CDC)/CENTRAL DEPOSITORY SYSTEM

(CDS)?

The CDC is a company that operates an electronic share register called the Central
Depositary System (CDS). The CDS eliminates the need for physical movement of share
certificates. CDC electronically manages book entry system for custody and transfer of
securities. CDS was introduced to replace the manual system of physical handling and
settlement of shares at the stock exchange and is managed by the Central Depository
Company (CDC), which is incorporated under the Central Depositories Act 1997. Investors
can open their accounts directly with CDC called Investor Accounts or open sub accounts
with a brokerage firm. It has also solved investor problems related to stock handling on
the settlement date, registration of shares, and exercise of corporate action benefits.
Visit CDC website for further details regarding shares safe keeping. (www.cdcpakistan.com).

REGULATING THE STOCK MARKET

HOW DOES KSE REGULATE TRADING ACTIVITIES?

The regulatory authority for the securities market and corporate sector in Pakistan is the Securities
and Exchange Commission of Pakistan (SECP). The SECP administers the compliance of the
corporate laws in the country and is run by commissioners under a chairman.
The Securities and Exchange Commission of Pakistan, is an autonomous regulatory authority, and at
the same time provides an accountability mechanism through establishment of a Securities and
Exchange Policy Board. All policy decisions are made by the board on the recommendations of the
commission and the board is directly answerable to the Parliament.

THE REGULATORY INFRASTRUCTURE OF KARACHI STOCK EXCHANGE

Members of the stock exchanges and trading at the Exchange are also subject to the discipline of
self-regulation under various Rules and Regulations of the Stock Exchanges.

KSE is regulated by the provisions of the following regulations:

1. General Regulations of Karachi Stock Exchange

2. Listing Regulations of Karachi Stock Exchange
3. Regulations Governing Over the Counter Market
4. Regulations Governing Future Contracts
5. Regulations Governing Cash-Settled Future Contracts
6. Regulations Governing Provisionally Listed Companies
7. Regulations Governing Short Selling, 2002
8. Regulations Governing Proprietary Trading
9. Regulations Governing Margin Trading, 2004
10. Regulations Governing Karachi Automated Trading System (KATS)
11. Regulations Governing System Audit, 2004
12. Regulations Governing Investors Protection Fund
13. Regulations Governing Continuous Funding System 2006
14. Regulations Governing Recovery of losses
15. Regulations Governing Risk Management
16. Regulations Governing Branch Offices
17. Regulations Governing Stock Index Future Contracts

Trading activities are being monitored through the surveillance terminal to ascertain that, there are
no illegal postings and dealings made in any of the issues listed in the Exchange. Through the
Compliance and Surveillance Group, compliance of members to set rules and regulations are
monitored.

WHAT IS STOCK EXCHANGE?

A stock exchange, share market or bourse is an organization which provides "trading" facilities for
stock brokers and traders, to trade shares of the listed companies and other financial instruments
such as Term Finance Certificates and Derivatives. Stock exchanges also provide facilities for the
issue (listing), redemption (delisting) of securities and other capital events including the payment of
income and dividends. Karachi Stock Exchange (KSE) is a modern market where trading takes place
with electronic trading system called Karachi Automated Trading System (KATS), which gives the
Exchange advantages of speed and minimum cost of transactions. Trades on an exchange are by
members only.

WHY DO COMPANIES GO PUBLIC?

The primary purpose for companies to be publicly listed at the exchange is to cost-effectively raise
capital. It reduces the company's reliance on the traditional financiers such as financial institutions
and individuals. Listing allows business expansion without increasing borrowings or draining the
company's cash reserves. History of listed companies indicate that companies that convert to public
ownership are more likely to become successful than control companies that remain private.
Companies that go public are also more likely to become acquirers than control companies. IPO
companies grow faster than control companies after going public. However, both public and private
companies must disclose financial information to regulators.

WHAT ARE SHARES?

Shares, as the name says, are shares in a limited company. Each shareholder is a partial-owner of
the company in which they have bought shares and investors can buy and sell their shares on the
stock exchanges. Companies on incorporation issue shares, (also called equities) and later perhaps
when they are building up a business. The original shareholders might still own them, or they may
have sold them to someone else through the stock market. If the company makes a profit, the
shareholders normally have some of it passed to them in the form of dividends. The amount paid in
dividends varies year by year, depending on how profitable the company has been and how much
money the directors and the company management want to keep in reserve for future expansion.

There are different ways in which you can participate in the stock market:

1. Directly: by buying and selling shares;

2. Indirectly: through a collective vehicle, in which shares are grouped together, such as a mutual
fund or Exchange Traded Funds (ETFs).

THE INITIAL OFFERING OF STOCKS (IPO):

The initial offering of stocks and bonds to investors is by definition done in the primary market (IPO)
and subsequent trading is done in the secondary market. Initial Public Offering (IPO) is the initial sale
by a company of shares of its stock to the public in the financial market.

BOOK BULIDING PROCESS FOR NEW COMPANIES:

Book Building is the process of price discovery and pricing a new share issue. The process by which
an underwriter attempts to determine, at what price to offer an IPO based on demand from
institutional investors for its efficient price discovery based on actual supply and demand by
informed investors.

MARKET AND IT'S WORKING

WHAT ARE THE MEASURES OF MARKET PERFORMANCE?

There are four indicators of market performance:

a. Market Capitalization
b. Value Turnover
c. Traded Volume
d. Composite Index

WHAT INFLUENCES MARKET MOVEMENTS?

General investors' sentiment indicates the direction of the market movement. However, the over-all
market sentiment is influenced by a number of factors - economic, political, fiscal, etc.

HOW DO OTHER ECONOMIC INDICATORS AFFECT THE MARKET?

Interest rates, foreign exchange, inflation, growth rates - these are some other economic indicators,
which affect the performance of the Stock Market. Favourable growth and inflation rates, as well as
stabilized interest rates and foreign exchange, are good news for the stock market. They usually
give a boost to the market performance as these indicate sound economic status. Soaring interest
rates, on the other hand, usually push investors from the stock market to some interest-bearing
investments, as they offer better returns than stock investing.

WHAT ARE STOCK MARKET INDICES? HOW DO THEY WORK?

KSE INDEX:

The Karachi Stock Exchange KSE-100 Index is the bench mark for our market, it comprises of the top
companies from each of the 34 sectors on the KSE, in terms of market capitalization. The rest of the
companies are picked on market capitalization ranking, without any consideration for the sector to
make a sample of 100 common stocks with base value of 1,000 in late 1991. There are two other
indices; KSE-30 Index, which is based on free float capitalization of top 30 companies and KSE all
shares Index which is based on full market capitalization of all listed companies at the Exchange.

An index, a composite figure, becomes a benchmark index when you choose it as the standard
against which to measure your own portfolio's performance over time. Many investors like to keep
track of how companies are performing in general. When a company's share price moves up or
down, it shows, whether it is perceived to be lucrative by the investors.

Movements in share prices are measured by various indices. These provide a benchmark against
which you can compare the performance of your shareholdings.

The most quoted index is the KSE-100. It comprises of the 100 largest companies on the Stock
Exchange and is updated minute by minute during trading hours. The index reflecting all the
companies on the Stock Exchange is the KSE-All Share Index and the KSE-30 Index comprises of top
30 companies.

Various investment companies have made their own indices to keep track of the performance of
their portfolios. There are three major types of indices calculated to help private investors track the
performance of their investment portfolios:

1. The Income Portfolio represents the performance of a portfolio designed to provide a regular
flow of income.
2. The Growth Portfolio is for the investor seeking capital growth in his or her portfolio.
3. The Balanced Portfolio represents a balanced portfolio providing both capital and income.

The indices are made up of three broad types of asset: Pakistani equities, foreign equities, bonds
and PIBs.

TAXES AND LEGAL ASPECTS

INCOME TAX

When you receive your dividend cheque, income tax has already been deducted by the company at
basic rate. Basic-rate taxpayers have nothing more to pay.
Higher-rate taxpayers have to pay the difference between basic and higher rate at the end of the
tax year.
Non-taxpayers can reclaim the tax deducted through their local tax office.

CAPITAL GAIN TAX

You make a capital gain when you sell shares at a higher price than you are paid. If you sell at a
lower price, you make a loss.
There is no Capital Gain Tax in Pakistan at present.
Tax is a very complex subject - you should always speak to a properly qualified tax adviser to make
sure you have a complete picture of the tax rules.

WHO IS INELIGIBLE TO OPEN A TRADING ACCOUNT?

Upon discovering that an investor fits any of the descriptions below, the stockbroker should refuse
to accept his or her application to open an account, or refuse to take orders from such customer to
buy, sell or subscribe securities:

• Minors who do not have the authorization of their legal guardian

• Personnel or employees of the authorities in charge of securities matters and regulators
• Person is declared bankrupt and rights have not been reinstated
• A person's opening an account that cannot supply proof of his identity
• Securities dealer who have not been approved by the competent authority.

DISPUTE RESOLUTIONS:

HOW DOES THE CLIENT KNOW IF HE/SHE HAS A CASE AGAINST STOCK EXCHANGE
MEMBER?

Just because the client has lost money while dealing in securities doesn't mean that he/she has a
case against the member. The financial markets have always gone through periodic down turns and
upturns and these fluctuations are not always the fault of member. However, it is the responsibility
of a member to invest money according to the client's instructions. There are certain malpractices
against which a client can lodge a complaint such as:

• Unauthorized trading (Sale/Purchase)

• Unauthorized transfer/movement of shares
• Non-supply of statements of account
• Non-supply of trade confirmations within 24 hours
• Overcharged commission
• Failure to execute investors' instructions/orders
• Suspension of payment
• Non-Delivery of securities.

WHAT ARE THE DIFFERENT WAYS TO HANDLE A PROBLEM WITH STOCK EXCHANGE
MEMBER?

1. AMICABLE SETTLEMENT:

Although the client has the recourse to approach the relevant stock exchange, SECP or the Courts
for lodging complaint, it is strongly advised that the complaint/problem should first be taken up
directly with the member. This will not only save the time consumed in correspondence and
procedures but will also preserve the trust and confidence.

2. ARBITRATION COMMITTEES OF STOCK EXCHANGES:

The client also has the alternative of taking up his/her complaint with the management of the
concerned stock exchange. All the stock exchanges have their own Arbitration Committees that look
into the grievances/disputes between the Investor and the Members.

3. SECP:

The client can also lodge his/her complaint with the Vigilance Cell which has been setup at SECP to
ensure that grievances/complaints of the general public are heard and redressed, in a quick and
efficient manner. All the complaints received by the Vigilance Cell against Stock Exchange members
are forwarded to the Investor Complaint Wing (“ICW”) of the Securities Market Division (“SMD”) for
further processing. However, SECP is not empowered to force the member for
compensation/damages.

4. CIVIL COURTS:

The client can also file his/her complaint with the Civil Courts.

WHAT ARE DIFFERENT FORUMS AVAILABLE FOR PURSUING A CLAIM AGAINST STOCK
EXCHANGE?

There are three forums available for pursuing claims against Stock Exchange members:

1. ARBITRATION COMMITTEES OF STOCK EXCHANGES:

The Stock Exchanges are Self-Regulatory Organizations (SROs) empowered to take cognizance of
complaints against the members under the approved Rules and Regulations. All the Stock
Exchanges have their own Arbitration Committees that look into the grievances/disputes between
investor and members. Arbitration Committees after perusing the documents and providing the
parties an opportunity of being heard pass an Arbitration Award in accordance with the relevant
Rules and Regulations of the Exchange.

2. SECP:

The SECP has established a Vigilance Cell which is responsible for ensuring that
grievances/complaints of the general public are heard and redressed, in a quick and efficient
manner. The client can file his/her complaint with the Vigilance Cell against Stock Exchange
members on the prescribed Complaint Registration Form (“CRF”) which is available, free of cost in
the offices of Stock Exchanges and the Commission including the Company Registration offices
(“CROs”). CRF may be downloaded from the official website of SECP:
http://www.secp.gov.pk/ComplaintForm1.htm. The ICW after perusing the documents and giving the
parties an opportunity of being heard passes an Order according to the relevant Rules and
Regulations. Any party dissatisfied with the Order can file an appeal before the Appellate Bench of
the Commission within thirty days from the date of issue of such Order under Section 33 of the SECP
Act, 1997.

3. CIVIL COURTS:

The client can also file his/her complaint with the Civil or Criminal Court. However this forum is more
appropriate for claiming compensation or damages.

WHAT IS ARBITRATION?

Arbitration is an alternative dispute resolution mechanism provided by the Exchanges for those
persons who do not wish to go to Court. Through this method disputes between the trading
members and between trading members and their constituents (i.e. clients of trading members),
may be addressed and resolved in respect of trades done on the Exchange. This process of resolving
a dispute is comparatively faster than litigation.

WHO ARE THE PERSONS WHO CAN ACT AS ARBITRATORS?

The Arbitrators are members and management of the Exchange and non-member directors of the
Exchange. For further details please refer to Regulation 29 of the General Rules & Regulations of
Karachi Stock Exchange (Guarantee) Limited

Disclaimer: The information contained herein is subject to change without prior notice. While every
effort is made to ensure accuracy and completeness of information contained, the Commission
makes no guarantee and assumes no liability for any errors or omissions of the information. No one
can use the information for any claim, demand or cause of action.

Risk Management
OUR RIGOROUS AUDIT AND INTERNAL COMPLIANCE PROCESS

• System Audit of brokers in order to ensure compliance with the regulatory framework.
• Continuous regulatory audit of systems and brokers to ensure compliance with regulations
and code of corporate governance.
• To be an assurance and consulting activity.
• To ensure that internal processes are being self-regulated and code of ethics and corporate
governance is being adhered to
• Evaluating and improving the effectiveness of controls and governing processes.
• Conducting periodic audits of Financial reporting, Information systems and compliance with
relevant tax laws and regulations.
• Development of Audit Committee Charter and Internal Audit Charter.
• Development of Internal Audit Framework.
• Development of an audit plan for 12 months, covering all major auditable activities of the
exchange.
• Continuous system audit of brokers.

CORPORATE GOVERNANCE

• Board of Directors consists of 10 members.

• 5 Elected Member Directors.
• 4 Non-Member Directors are appointed by Securities of Exchange Commission of Pakistan
(SECP) renowned business personalities from all industries.
 • MD is ex-officio member of the Board and is responsible for the operational administrative
matters of the Exchange.
• Chairman is elected by the Board out of the Non-Member Directors.

OUR PROTECTION PYRAMID

“Enhancing investor confidence is at the heart of all our services”

The Management of the KSE considers that investors’ confidence in the fair dealings at the
Exchange is key to rapid development of the Capital Markets. Therefore, a number of initiatives
have been taken to enhance investor confidence in our markets.

• Customer Services Department helps resolve disputes between investors and brokers
through a panel of arbitrators.
• Investor Protection Fund (IPF) created to protect investors in the event of a member/broker
default.
• Clearing House Protection Fund (CHPF) created to protect members/brokers in the event of
another member/broker default.
• Investor Guide available in both printed and electronic form.
• Investor education seminars held on a regular basis.
• Investor help desk to answer investor queries.

CURRENT TAXES – CAPITAL MARKET TRANSACTIONS

• Capital Value Tax (CVT) on purchase of shares.

• Presumptive Tax in lieu of Commission Sale Value of value of sale.
• Presumptive Tax in lieu of Commission Buy Value of value of purchase.
• Withholding Tax on Sale calculated on value of sale.
• Withholding Tax on Carry Over Trades.
• Current Taxes.

MAINTAINING MARKET INTEGRITY IS THE KEY TO A FAIR, EFFICIENT AND TRANSPARENT

MARKET

• The KSE is a frontline regulator for the Capital Markets and has implemented strong risk
management, audit and surveillance systems.
• Unique Identification Number (UIN): creates a link between every order entered into the
trading system and the entity behind that order to ensure greater transparency and thus
provide investor protection.
• Introduction of new Risk Management System (RMS) based on internationally accepted
Value at Risk (VaR) principles with pre-trade verifications.
• Netting of clients’ exposure across different markets, across different scrips, across clients
and across different settlement periods has been prohibited by new RMS.
• Implementation of T+2 Settlement System which was previously on T+3 Settlement System
on Ready Market.
• Comprehensive default regulations implemented.
• Collections of margins by eligible securities as collateral and valuation of such securities in
order to protect both brokers and investors.
• Market Control and Surveillance monitor price fluctuations and trading patterns on a real
time basis to ensure compliance with regulations. Implementation of Advance Warning and
Control System (AWACS) software.

1. Identifying unusual trading patterns of market conditions that may indicate violation.
2. Analyzing the trading information in order to identify speculators involved in price manipulation.
3. Awareness of market participants of effective surveillance for transparency and fairness in
trading.
FOREIGN INVESTORS ARE AT PAR WITH LOCAL INVESTORS ACROSS ALL SECTORS

• 100% foreign shareholding is allowed.

• Dividend is taxed as a separate block of income at 10%.
• Un-restricted repatriation of profits and principal.

INVESTMENT POLICY & TAX INCENTIVES (LOCAL INVESTOR SPECIFIC)

All mutual funds and modaraba companies are exempt from income tax provided they pay out 90%
of their earnings.

• Dividend is subject to withholding tax at different rates.

• Dividend income is taxed as a separate block of income in the hands of individual
shareholders.
• Any income derived from TFCs is subject to income tax

How to Invest
Exposure Limits:

The KSE has an effective var based Risk Management System under the regulation governing Risk
Management of Exchange. As a part of risk management, KSE has devised circuit breakers as under.

T+2:

There shall be a circuit breaker in case of price fluctuation 5% or Rs. 1.00, whichever is higher, from
the closing price of the previous day. Accordingly trading will be restricted within upper and lower
limits of 5% or Re. 1.00 whichever is higher from last closing price.:

Futures Contract:

There shall be a circuit breaker in case of price fluctuation 5% or Rs. 1.00, whichever is higher, from
the closing price of the previous day. No trade in the Futures Contract market will be allowed beyond
the above price fluctuation In order to strengthen the Risk Management, the amount of Net Capital
Balance has been enhanced to Rs.2.5 million under the Capital Adequacy Ratio the members are
allowed to trade up to 25 times of the Net Capital balance.

Clearing House Protection Fund:

In order to ensure smooth settlement, the KSE has established a Clearing House Protection Fund. In
case of default of a member, shortfall, if any, is fed through this fund up to a certain limit as
approved by the Board from time to time. The contribution to the Fund is made by the members of
the Exchange.

Investors Protection Fund:

An Investors Protection Fund has also been established to protect small investors from the
consequences of a member's default. The fund is operated under a set of Regulations.

Market Surveillance:

The advent of the Automated Trading System has enhanced the market surveillance capability of
KSE to devise a market control system. An independent Market Control and Surveillance department
has been established to monitor price fluctuation and trading patterns to ensure compliance with
regulations and detection of speculative activities.

Minority Shareholder's Interest:

The Exchange has played a proactive role in safeguarding small shareholders' interest and has
strengthened its monitoring and enforcement capability to ensure corporate governance. During
past couple of years a number of cases have been referred to the SECP in this regard.
Investment Instruments
What to buy

Let's start by examining the first component of any successful investing strategy - deciding what to
buy. The vast number of instruments trading on our markets provides Pakistani investors with
fantastic opportunities but also with its own unique challenges. Equities, corporate and government
bonds and Exchange Traded Funds (ETFs) are just some of the asset classes traded on the Karachi
Stock Exchange. Understanding your own attitude to risk is vital when deciding which of these asset
classes are appropriate for you to invest in.

Alerts

There may be a number of reasons why you might initially consider a potential investment - press
reports, news stories, share recommendations, sudden price movements and chart breakouts to
name but a few. But as all long-term successful investors know, you must do your own research.

Fundamental data

Analysing the fundamental data is vital. And you'll need to be confident that that data is accurate,
comprehensive and up to date. The fundamental data is collected direct from the companies
themselves from their interim and final results and is updated within minutes of being released. This
data is subject to various checks to ensure it is extremely high quality and very comprehensive.

Broker forecasts

Fundamental data research, though vital will only identify past performance - so how can you
analyze future prospects? You can start by looking at the Broker Research. The Broker Research is a
consolidated view of what all the leading analysts believe are the future prospects of a particular
business. This will include key metrics such as EPS growth and consensus buy, hold and sell
recommendations. Broker research data gives you an instant view of analysts overall position on
that stock. This research data is available in the newsletters published by the brokers or their web
pages.

Directors’ information

The next step might be to gauge what level of optimism the directors of a company may have in the
business that they manage. That optimism (or pessimism) is usually reflected in the number of
shares that the directors are buying (or selling) in their own company. Directors' buying and selling
activity is therefore another way of analyzing future prospects, but this also needs to be interpreted
carefully. Limited selling activity for example is not necessarily a negative sign as directors may
have very genuine reasons for looking to reduce their holdings or to generate cash for personal
reasons. Buying activity is perhaps a more useful indicator. If there has been a significant level of
buying activity (one, or preferably more, directors buying a substantial amount of shares over a
number of transactions) might indicate that the managers of the business have expressed a high
degree of confidence in their company.
So let us presume that you have done your research and have identified a suitable investment
opportunity. The fundamentals look great, the Broker Research indicates that the analysts have a
positive view of the company's future prospects and this is shared by the directors themselves who
have been actively buying stock. What next? Well getting the timing right can be equally as
important as deciding what to buy.

When to buy

Sometimes in our investing experience we will find shares that seem to represent an excellent
buying opportunity. But having bought them they fail to fulfill t heir promise. To a large degree,
share price movements are directly influenced by two key factors - supply and demand. If enough
investors share your view that the stock is worth buying and act accordingly, then the price will start
to rise. So how can you assess whether other investors are buying? You can look at the extended
trading data on Exchange’s website.
Trade data

As well as listing every trade in real-time, a Bid and Offer price is shown alongside each script. As a
lot of the trading is between market intermediaries such as market makers, it is important to realize
that this is not an exact science and should be viewed with a degree of caution. None the less it can
be a useful indicator of the buying and selling activity at any given time.

Technical analysis

Technical Analysis can be one of the most effective ways of finessing the timing of a purchase.
Technical analysis is a huge subject in its own right, but even a number of very simple studies can
help. For example, a short term moving average rising above a long term moving average - known
as a golden cross- can be a very positive signal.

News analysis

An understanding of forthcoming corporate events will also influence the timing of a purchase. Is the
company about to go ex-divided for example? Or are the interim or annual results expected shortly?
Would it be sensible to delay the purchase until after these events? Understanding how a share
reacts to news stories may also influence the timing of a buy. Exchange Insight news analysis
enables you to look at all the announcements for a particular company and then see how the share
price has subsequently reacted to that news. If you are looking for long term steady growth and find
a high degree of volatility resulting from announcements, then you may decide to pass up the
opportunity.

Monitoring and selling

Before entering into any trade it is important to have a clear understanding of the expected future
performance of that stock, and an exit strategy, either in the form of a stop loss if the share fails to
perform as expected, or a target price to sell at. You can instruct your broker to set a stop loss at
the time of purchase, as well as, to let you know when the target price has been reached. To
monitor the details to your relevant portfolio and you can use the My KSE facility to review the
change in price and monitor the scripts that you have a stake in.

Portfolio analysis

The advanced portfolio analysis facilities will enable you to see which sectors your portfolio is
invested in and to manage risk by ensuring that your investments are diversified and you are not
overexposed in any sectors. Karachi Stock Exchange only can provide data for your own advanced
portfolio analysis facilities, for this please review our data portal.

Heat map

Heat maps can serve a dual purpose. Firstly they give a valuable instant visual representation of
how a particular index or sector is performing. Color coded to show price movement they can be a
useful early-warning indicator that might highlight short term opportunities. They are also a good
way of monitoring an existing portfolio. A portfolio heat map will highlight which of your shares are
rising and falling at any given time could help you exit losing positions before incurring significant
losses. Karachi Stock Exchange only can provide data for your own heat maps, for this please review
our data portal.

How can we measure the long term success of our investment strategy?

Comparing the performance of our portfolios against individual indices or sectors is one way. This
type of benchmarking is the way in which the performance of most professional fund managers is
measured. Comparisons can also be made between the overall portfolio and the individual shares
within it. This will help identify over and under performing shares.

Investor Awareness
Getting Started to invest in KSE
In this section you will learn about how to invest in Karachi Stock Exchange

Brokerage Authenticity

Know about the authenticity of your broker, agent and the branch which is carrying out your
transaction.

• Active Members
• List of Agents
• Regulation
• Branch Offices
• Cancelled Agents

Investor' Protection

Investors’ confidence in the fairness of capital markets is fundamental to the success of markets in
capital foundation. The Karachi Stock Exchange, as frontline regulator and SECP, as apex regulator
of the capital markets use a variety of means to get the investors protected from market abuse and
for this purpose has framed various Rules and Regulations.

Investment Climate
Equity Market

In 1991, the secondary market was opened for foreign investors on an equal basis with the local
investors. This measure along with the government policy of privatization has resulted in rapid
growth of the market since 1991. It may also be mentioned that "privatization" has bee n adopted as
a philosophy and most of the business & finance activities which were previously reserved for the
public sector have now been opened for the private sector. The change of policy is most visible in
the financial sector where a number of commercial banks, investment banks, discount houses,
leasing companies, modarabas, life insurance companies and mutual funds have been allowed in the
private sector.

Liberalization policy has led to rapid deregulation of the national economy and the impediments to
private initiative have been speedily removed. Foreign exchange holdings and transfers have been
liberalised, industrial sanctioning has been done away with except for few sectors where, for
strategic reasons, prior permission of the government is necessary.

Legal Framework

• The securities market and the corporate sector are regulated by the provisions of the
Companies Ordinance 1984.
• The Securities and Exchange Ordinance 1969 and Rules framed there under in 1971.
• The Securities & Exchange Commission Act 1999.
• There are also Federal legislations relating to specific areas like

- Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance,

1970.
- Investment Companies and Investment Advisors Rules 1971.
- Modaraba Companies and Modaraba (Flotation and Control) Ordinance, 1980.
- Companies (Issue of Capital ) Rules 1996.
- Leasing Companies (establishment and Regulation) Rules 1996.
- Asset Management Companies Rules 1996.
- Insurance Companies Ordinance 2000.
- Guidelines for insiders trading.
 • In addition to above, the listed companies are also subject to the Rules and Regulations of
the stock exchanges.

The Regulator

The regulatory authority for the securities market and corporate sector in Pakistan is the Securities
and Exchange Commission of Pakistan. The Commission was established on January 01,1999 by
dissolving the Corporate Law Authority which was formed in 1981 under a Special Law. The
Commission administers the compliance of the Corporate laws in the country. The Commission is run
by the Commissioners under a Chairman.

The Asian Development Bank's Capital Market Development Programmed envisaged the conversion
of CLA into Securities and Exchange Commission of Pakistan, as an autonomous regulatory
authority. The new system provides administrative, operational and financial autonomy to the
Commission and at the same time provides an accountability mechanism through establishment of a
Securities and Exchange Policy Board. All policy decisions are made by the Board on the
recommendations of the Commission which is also empowered to take suo motto action. The Board
is directly answerable to the Parliament.

Members of the stock exchanges are also subject to the discipline of self-regulation under various
Rules and Regulations of the stock exchanges. Self-Regulation is the essence of market regulation
and for this purpose the legal framework has been amended to facilitate the attainment of SRO
status by the stock exchanges.