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PSX 100:

Learning Center

How many types of companies are operating in Pakistan?
The following types of companies are operating in Pakistan.
  1. Proprietorship Concerns
  2. Partnership Concerns
  3. Private Limited Companies
  4. Public Limited Companies Non listed public limited List public limited
  5. Trusts
  6. Foundations
What SECP stands for?
SECP stands for Securities and Exchange Commission of Pakistan.

What is the role of SECP in Pakistan?
SECP is a regulatory authority that administers the company law and regulator Non-Banking Financial Institutions (NBFIs) like Developed Financial Institutions (DFIs).
Leasing companies, Modarabas (Islamic Financial institutions) etc. it reviews periodically the activities of the companies whether they are functioning as per companies ordinance 1984. It salsa regulates the securities market as well as the capital market.

What does the State Bank of Pakistan do & what is its role?
State Bank of Pakistan is the central Bank of Pakistan and is responsible for the issuance of currency within the country, administering monetary policy (including open market operations), and holding deposits representing the reserves of other banks i.e.
Statutory liquidity requirement (SLR) and engages in transactions designed to facilitate the conduct of business and protecting public interest.

What is money market and capital market?
Usually money market is that market where seller and buyer of money or near money exist, and this market pertains to the transaction for maximum period of one year.

What is a debt security?
They are those securities issued by Corporate against which they raise funds. It is the liability of the firm to repay the face value of the security, plus the interest on or before the maturity of the particular security. Since it is an interest-bearing instrument, it is recorded as a debt of the issuing company.

What is TFC?
It is type of corporate bond and a debt security. Which can be issued by corporate in Pakistan under Companies Ordinance 1984? Under this ordinance it’s redeemable. Capital and can be traded in the secondary capital market.

Why are TFCs issued? And who can issue TFCs?
Those corporate that want to raise funds directly from institutional investors, as well as the general public. Issue TFCs. Private Limited Companies can issue TFCs for a private placement i.e. raise funds from institutional investors, whereas all listed companies can issue TFCs to raise funds, by private placement as well as public offering.

What is meant by bond & perpetual bond?
Bond is an instrument that gives a fixed predetermined amount. After a given period of time. Bond is normally issued for a specific period of time i.e. their maturity period is decided. Those bonds that do not have any maturity period or issued forever, are called perpetual bond. Bonds can be issued both by Corporate and Government. The Government of Pakistan have issued bonds like Pakistan investment Bonds (PIBs). Treasury bills and bonds under National Saving Schemes (NSS). Corporate issue bonds in the form of term finance certificate.

How many types of debt securities are there in the capital market?
The following types of debt securities (bonds) are afloat in the capital market of Pakistan
  1. Government issued securities
  2. Pakistan investment bonds (PIBs)
  3. Federal Investment Bonds (FIBs)
  4. I has been discontinued by the government and replaced by PIBs,
  5. Treasury Bills
  6. National Saving Schemes (NSS)
  7. Defense Saving certificate (DSCs)
  8. Regular income certificates (RIC)
  9. Special Saving Certificates (SSCs)
  10. Corporate bonds
  11. Term finance certificates issued by vanes companies
What is the role of a stockbroker in trading?
The stockbroker is an intermediary between a buyer and a seller of stock and gets a commission on each buying or selling transaction. The broker has to be a member of the stock exchange.

What does the term “Bhata” imply in the Stock Market of Pakistan?
It is the terminology used in the capital market of Pakistan for a short-selling i.e. you don’t have Scripps but you sell them at a higher rate and purchase the same scripts in the same quaintly at a lower rate, before the settlement date and vice versa.

What are the criteria for an investment in the capital market?
An intelligent investor should consider the opportunity cost of their funds before taking any decision. After this one should focus on the following in order to make an investment. For investment in fixed income securities one should examine the tenure, the interest rate the credit rating and the history of the company issuing the security. For equity investment one should look at the dividend paying history repute of the management and trend of the stock price.

What are Present Value of money (PV) Future Value of money (FV) and Net Present Value (NPV)?
Present value of money means the value of money today or discounted value of money if invested at a specific rate for a specified time period future value of money means the value of money in the further when invested at a specific rate for a specified time period. Net Present Value is the difference between the sum the present values of cash inflows and sum of the present values of cash outflows.

What is an IRR (Internal Rate of Return)?
The interest rate at which discounted cash flows result in the NPV becoming zero.

What does a discount rate mean?
The rate at which the central bank (State Bank of Pakistan) lends to financial institutions when there is no liquidity in the market.

How would I come to know that my stockbroker is doing the right trading for me?
One each executed transaction your broker should send you a confirmation contract. You can check the rate mentioned in the same contract through Newspapers of Daily Quotation published by Stock Exchange.

What is meant by Yield To Maturity (YTM) of a bond? And how is it calculated?
The yield to maturity of a bond means the IRR the gives the interest rate to the investor if they hold it till maturity. If an investor purchases the bond at par value from the primary market. And holds it till its maturity then the YTM of the bond would be equal to its coupon rate.
One can easily determine the YTM by applying the following formula, when the bond is giving a fixed coupon rate:
YTM = (( C=(FV-MV) / N) / ((FV+MV)/2))

C is the coupon payment
FV is the face value of the par value of the instrument
MV is the current market price or the market price
N is life of the bond

If the bond is not giving the fixed coupon rate then find the IRR of the cash flows of the remaining period. Which will give the YTM i.e. IRR = TYM.
  1. Coupon Rate: Annual payout as a percentage of the bond's par value.
  2. Current Yield: Annual payout as a percentage of the current market price you'll actually pay
  3. Yield to Maturity (YTM): Yield to maturity is the discount rate that equates present value of all the cash inflows to the cost price of the government security or bond. This is actually the Internal Rate of Return (IRR) of the government security or bond.

Market Terminology

What is a Bid price?
The price at which a dealer is willing to purchase a security.

What is an Offer Price?
The price at which a dealer is willing to sell a security.

What is a bullish market?
It's a word to describe the investors' attitude. Bullish means optimistic & a bullish market is one where there is an upward trend, a rising market.

What is a bearish market?
Opposite to bullish market - A bearish market is one where there is a downward trend and the sellers outnumber the buyers.

What is meant by being long?
A bull position or description of a holder of a particular stock or share.

What is meant by being short?
Anyone who has sold securities she does not own, in anticipation of buying them later at a lower cost.

What is capital gain?
The amount by which the sale price of a share exceeds the purchase price.

What is averaging?
The practice of buying more of the same shares on a fall, or selling on a rise, in the hope of gaining advantage by the fluctuations.

What is Day Order?
A buy or Sell order expiring at the close of last session...the same day.

What is a Limit Order?
An order specifying a price at which an investor is willing to buy or sell a security.

What is Market Order?
A buy or Sell order to be executed immediately at current market prices.

What is Net Asset Value (NAV)?
The amount by which the assets of a company exceed all liabilities, including loan and preference capital, divided by the number of outstanding shares in issue.

What is hedging?
The practice of offsetting risks against one another, in an attempt to fend off market fluctuations.

What is an odd lot or a broken amount?
An odd amount, such as 59 shares, which is not a normal market quantity is called odd lot. Normal market quantities are usually 500 or 100 shares.

What is par value?
A share is at par value when it is quoted or sold at its face value.

What is a premium?
A security stands at a premium when the price is more than its paid-up or par value.

What is over the counter market?
An informal network of brokers & dealers who negotiate sales of securities (not a formal exchange).

What is a Forward Contract?
An agreement calling for future delivery of an asset at an agreed upon price.

What is an IPO?
An IPO is an Initial Public Offering. This is the process by which a company lists itself on the exchange. A specified percentage of the company's shares are offered to the general public at par value. In some cases, a premium is added to the par value (usually Rs10.00).

When does "badla" take place?
CFS trades take place every day under the T+2 settlement system.

What are the types of "badla" in the market?
There are essentially two types:
  1. When a party needs funds to finance a purchase transaction or requires a particular stock for delivery in a clearing.
  2. When a party has the funds to lend to take advantage of high interest rates prevailing in the equities markets or has stocks to lend to benefit from reverse Badla rates. The latter is security lending.

What is meant by the terms "daily volume and daily turnover"?
Daily volume is the total number of shares traded at the exchange during the trading day. Daily turnover is the total rupee value of shares traded at the exchange during the trading day.

What is "commission"?
This is the direct cost of executing a trade through a broker. It differs depending upon the value of the scrip and the type of client.