Primary markets, where new equity stocks and bonds are offered to investors, and secondary markets, which trade already existing securities, divide these markets into two types. Because they transfer funds from those with it to those who need it for useful purposes, capital markets are a vital element of a functioning contemporary economy. Similarly, capital markets may offer investment management, lending, equity sales and trading, research, consulting, or a range of other different sorts of services: Capital markets teams aim to build on these kinds of strategic relationships so they may develop a thorough grasp of clients’ needs that will allow them to provide solutions and counsel that will have a notable impact.

Legal Services in Capital Markets

Investment Banking Services

From syndicated loans to import solutions and integrated receivables, the capital markets domain provides universal, strategic advice and solutions that significantly improve its clients’ financial position.

Mergers & Acquisitions

Usually, this kind of knowledge originates from experienced, senior bankers who can use their well-known industry connections and specific insights to make sure every merger or acquisition deal is carried out flawlessly.

Debt Capital Markets

Capital markets help businesses secure finance, restructure, and implement solutions, led by experienced bankers.

Equity Capital Markets

Domains of capital markets help businesses to design, launch, and carry out equity issuances, including follow-ons, convertible notes, and initial public offerings. Domains of capital markets offer prospective issuers guidance and instruction on transaction size, timing, structure, execution choices, and underwriter selection.

Importance of Capital Markets in Pakistan

The Securities Act 2015 replaced the 1969 Ordinance and brought reforms, including exchange demutualisation. New provisions, including the International Organisation of Securities Commissions (IOSCO) guidelines for securities regulation and investor protection, have been included in the new law. These rules offer the implementation of sophisticated reforms intended to stop market abuses and manipulative actions.

More clauses were added to the new legislation as well, including complete disclosure at the time of the first offering, ongoing disclosure obligations, and an inclusive compliance system aimed at increasing public confidence. The SECP demands that all investors be given equal access to the same information concurrently. Should you want to know what the SECP, the financial regulator agency in Pakistan, is all about, they aspire to develop a new, modern technology and efficient corporate sector as well as a capital market based on strong governance ideas, therefore supporting Pakistan’s economic growth.

Most of the trading in capital markets happens through computerised electronic trading systems, although capital markets are dispersed throughout financial hubs across the globe. Some of these are available to the public; others are more strictly controlled. Their basic role is also to lead the users to move local resources and steer them effectively into creative applications, thereby raising national productivity.

The growth of the economy is supported by the capital market in Pakistan, which also provides a useful source of finance in the nation. Capital markets also offer a tool for risk management in resource provisioning, therefore enabling risk diversification throughout the economy and providing a great path for divestiture to occur. It is very useful in Pakistan for gathering savings for investments in useful assets and also serves as a major spur in the transformation of the economy to be more efficient in order to improve the country’s long term growth potential. It also supports long-term technical development. But since it helps to promote the adoption of more robust corporate governance standards, it helps to raise the calibre of information. Pakistan has had a critical goal of growing its capital market to offer businesses another source of finance. By so doing, it would better mobilise investor savings and also offer a significant source of external financing. 

Pakistan Stock Exchange (PSX)

Under the second phase of the Stock Exchanges Demutualisation and Integration Act 2012, the three stock exchanges were integrated to form the Pakistan Stock Exchange (PSX) Karachi Stock Exchange (KSE), 2) Lahore Stock Exchange (LSE), and 3) Islamabad Stock Exchange (ISE), which combine to create a national stock exchange termed the Pakistan Stock Exchange (PSX) on January 11, 2016. This is a major step toward demutualisation of the Pakistani stock market. They seek to support creating a strong case for drawing strategic collaborationswhich may be required for offering technical knowledge and supportand so minimise market segmentation. MSCI also designated the Pakistan Stock Exchange (PSX) as a frontier market on 8th September 2021.

The Karachi Stock Exchange, one of the PSX’s constituent stock exchanges, was listed among the best performing frontier stock markets in the world: between 2009 and 2015 it provided an average 26% return annually, yet the Pakistan Stock Exchange (PSX), was taken over by a consortium of Chinese exchanges which has impacted the capital market because of the recent acquisition of a new Chinese trading platform and push on innovation. But the coronavirus epidemic impacted the Pakistan Stock Exchange in 2020. The IPOs were oversubscribed, exchange-traded funds were launched for the first time, index halts, and broader circuit breakers were introduced in the trading mechanism. Furthermore, the Pakistan Stock Exchange’s (PSX) operational structure permits electronic trading, clearing and settlement, including government bonds and corporate debt instruments.

which internationally boosted Pakistan’s capital market profile. Many other countries also have a single capital market, so this integration process is not a recent innovation presented in our nation. It is anticipated to be advantageous for our country and to open the road for more foreign investments in this industry. During the first three quarters of the present fiscal year, the market saw sluggish activity; however, it has been discovered that the PSX is breaking past marks.

Islamabad Stock Exchange (ISE)

Compared to the lowest level of 3,314.05 on March 30, 2015, the greatest level of the index, 4,800.33, was observed on July 24, 2014. During July–March 2014–15, though, the whole capital rose. Over this time, the aggregate listed capital reached Rs.894.4 billion. The market capitalisation also contrasted with last year. The sale offer of 40.475 million shares of Engro Powergen, Qadirpur Limited; 48.308 million ordinary shares by Saif Power Limited; 13 million ordinary shares by systems Limited; 19.349 ordinary shares by Synthetic Products Enterprises Limited, 131.275 million shares of Allied Bank Limited by the Privatization Division, Government of Pakistan, and 27.350 million shares of Mughal Iron and Steel Industries Limited to general public, institutional investors, and high-net-worth people; disinvestment of 609.317 million shares of Habib Bank Limited by Privatization Division, Government of Pakistan. Section 57(1) and 62 of the Companies Ordinance stipulate that the SECP accepted this offer for all the firms stated above.

Lahore Stock Exchange (LSE)

Due to the requirements of the provincial capital of the Punjab, as the province should be met, the LSE Guarantee Limited was launched in October 1970 under the Securities  Exchange Ordinance of 1969 by the Parliament in Pakistan. With 83 members, it was housed in a rented Bank Square, Lahore, property. From Rs. 1,042.2 billion in June 2014 to Rs. 1,096.1 billion in March 2015, the overall capital increased. Numerous studies plainly show that the market value in the LSE has grown.

Karachi Stock Exchange (KSE)

Therefore making it the best-performing stock market globally. Total market capitalisation reached Rs 7.33 trillion (around US$72 billion) as of July 10, 2015. Bloomberg says that since 2009, the Pakistani benchmark index of stocks has been the third-best performing index worldwide.

Formation of Pakistan Stock Exchange (PSX)

Three stock exchanges’ owners1) Karachi Stock Exchange (KSE), 2) Lahore Stock Exchange (LSE) and Islamabad Stock Exchange (ISE)had several meetings; the Securities and Exchange Commission of Pakistan (SECP) helped with the process throughout. Moreover, a non-binding agreement called a Memorandum of Understanding (MoU) specifies each party’s plan to take action, carry out a commercial deal, or create a new partnership. This paper could be referred to as a Memorandum of Agreement (MOA) or a letter of intent (LOI). This paper, however, was signed between the Demutualisation Committee of three stock exchanges to merge the activities of two of themISE and LSEto create a KSE (Karachi Stock Exchange). And then, for all certificate holders of the three exchanges, the Karachi Stock Exchange conducted a two-day pre-production mock trading session before the formal start. Their goal was to curb market fragmentation and strengthen strategic partnerships. Providing technical knowledge and support, this instance could be quite important.

Overall, this procedure has finished the second phase of the Stock Exchanges Demutualisation and Integration 2012, approved by a combined session of the Parliament. The SECP (Securities and Exchange Commission of Pakistan) welcomed KSE’s new designation as Pakistan Stock Exchange Limited (PSX). Pakistan’s Competition Commission (CCP) likewise concurred on this. They want to improve Pakistan’s Capital Market’s operating efficiency, which offers a single deep liquidity pool and a totally integrated national trading platform; raise the profile of Pakistan’s Capital Market globally; and encourage cross-listing and international capital raising by Pakistani companies not only to investors but also to listed companies, including holders of Trading Right Entitlement Certificates (TRECs). The strategic investor in the Pakistan Stock Exchange must be a stock exchange, depository company, derivative exchange, or clearing house meeting the criteria approved by the SECP. A depository firm, a derivative exchange, or a clearing house meeting criteria approved by the Securities and Exchange Commission of Pakistan (SECP).

Among the reasons why a firm should register on PSX are its elevating impact on the company’s profile and its attracting and maintaining of top talent owing to a better reputation. By going public, a company may achieve a market valuation higher than its book value, reflecting its true worth. For the issuer, under some of the extra tax advantages and compliance relaxations, companies are not required to adhere to the requirements of the PSX rule book, as it only relates to the primary board.

Sector-wise Progress in Capital Markets

Some key industries that drove the Pakistan Stock Exchange performance include Oil and Gas, Banking, Pharmaceuticals, Automobile, etc. The following are the top industries’ performance:

Table: Sector-wise Progress in Capital Markets

Companies in Capital Markets

Organisations are a prominent form of business partnership. Under the corporate law, especially, businesses are constrained by stock. Guarantees, which are intended for philanthropic or public interest projects where no profit is expected, confine some businesses. Share-limited companies come in public and private varieties. Shares of private limited businessesthose kept for small businessescannot be publicly traded or listed on a stock exchange.

A public limited company or publicly listed corporation is legally permitted to offer its shares for sale to the public. Companies of this kind are set up expressly to generate considerable sums of money from the general population. Companies registered as public limited companies may be listed on a respected stock exchange, and their shares are openly traded. Public corporations often have far more rules than private ones. As the businesses expand, though, they could want to get funding in shares from the general public.

A capital market connects buyers and sellers to trade stocks, bonds, and other financial assets. Pakistan Stock Exchange (PSX), Mercantile Exchange.

Why opt for a Public Listed Company?

Usually, bank loans, private investors/creditors, or the shareholders’ savings that they contribute to the business are the primary sources of capital for a private firm. But those sources of finance can be rather restricted.

Shareholder savings are finite, and often shareholders will be unwilling to invest all of their money in one corporate project. Given the comparatively fewer disclosure and regulatory obligations linked with private corporations, as well as the protection that limited liability provides shareholders, banks and other creditors are typically reluctant to grant significant loans to the private firm.

The Public Listed Company (PLC), by contrast, offers a larger source of funds for long-term growth and investment. By selling their stock to the public, PLCs can legally access a sizable source of funds that private firms cannot reach.

Stock exchanges provide a practical venue for PLCs to publicise their shares. And since public money is at play, PLCs naturally have exponentially more stringent disclosure and compliance obligations than do private corporations.

Role of Pakistan Stock Exchange (PSX)

Public corporations can use the PSX to provide their securitieseither shares or debts, as the case may beto the public to generate funding. The PSX has the following four boards (listing sections) for the company to list its securities:

• Main Board;
• Growth Enterprises Market (GEM) Board;
• Publicly issued Debt Securities Board; and
• Privately Issued Debt Securities Board.

   

Every board is, basically, a particular kind of market where investors may only be able to be supplied with the securities of those firms satisfying the board’s criteria. For instance, one requirement for being listed on the Main board is that the Company should have a minimum post-issue paid-up capital of PKR 200 million. Companies of this kind can make their stock available to the general public. While companies listed on the GEM board can only offer their securities to institutional investors and are obliged to have a minimum post-issue paid-up capital of PKR 25 million.

Companies seeking a Main board listing are subject to more scrutiny and documentary needs as opposed to those listing on the GEM board, given the general public involvement on the Main board. Regarding publicly released Debt Securities and Privately issued Debt Securities, the same idea applies.

Listing is the process by which you can give the shares of your company as equity on the stock market, where the requirements for listing under PSX for the main board include a minimum post-issuance paid-up capital of 200 million and 25 million for the GEM board.

Growth Enterprise Market (GEM) Board

PSX Gem board is a tool businesses can use to get financing for development and expansion. Where just qualified investors could buy and sell shares of a GEM board-listed firm with little annual fees ranging from 50k-200k. The trading should be conducted through KATS (Karachi Automated Trading System) after the company is listed on PSX. For post-issue paid-up capital, the issuer has to maintain a minimum free float of 10%, and for a lock-in period which is not less than 3 years, the sponsor would hold at least 25% of the post-issue paid-up capital of the issuer. The original listing price is limited to 50k; the annual listing charge changes according to the amount.

The Growth Enterprise Market (GEM) Board particularly targets the listing of small, medium or greenfield firms (companies that have not started commercial production or operation at the time of listing – defined under Sec 2(XXIIIA) of the Public Offering Regulations, 2017).

Companies included on the GEM are not authorised to offer their stock to the public. Shares on the GEM market may only be traded by institutional investorsfinancial institutions, corporations, trusts, stock brokers, and other approved entitiesor accredited individual investors (those registered with the National Clearing Company of Pakistan as having assets of at least Rs. 5 million).

Since the GEM Board, per se, does not engage the general public, the capital, disclosure, and compliance standards for companies trading on the GEM Board are less demanding than those for listing on the Main Board.

Different requirements apply for a business to be listed on the main board and the GEM board. For a GEM board, only qualified investors can join; an information memorandum is required; the general public can invest under the primary board with a full prospectus requirement. Its first fees are limited to 1.5M, and only approved TREC (Trading right entitlement Certificate) bearers by SECP may serve as advisors to the offering.

Main Board

Companies may list under the main board via an initial public offering (IPO), which is the process by which a company makes a stake of its ownership available to the public for the first time. Those investors who want to buy shares in the corporation sign on to that company. The primary board eligibility criteria specify a minimum post-issue paid-up capital of 200 million.

The corporation seeking to list under the main board should create regular financial statements, which must be audited by Quality control review (QCR) rated chartered accountants and made available on the internet. Basic company information and a prospectus must be on the website. The company must meet the operational criteria of being in operation for at least three years and of being profitable for at least two previous years before going public. At PKR 1.5 Million, the initial listing costs will be one-tenth of 1% of paid-up capital, and the yearly listing price will be limited to PKR 3 Million.

To list the business under the main board, the company must assign a consultant and must provide all the papers. To guarantee enough disclosure in the prospectus within a one-month time frame, the firm has to first check and carry out the requisite due diligence. Then, on behalf of the Exchange, the PSX listing committee permits approval of the company’s listing application with a sixty-day validity timeline for approval. Then, within one month, SECP has to approve the prospectus of the corporation. The public offer is made via a fixed price or book building strategy in seven to ten days, and shortly after the public subscribes to the firm, the company is formally listed on the main board.

One can have their firm delisted using the voluntary delisting technique by purchasing back the sponsors’ shares at a price sanctioned by the exchange. Another approach is involuntary de-listing, whereby a corporation is deleted from the list due to a breach of any PSX guidelines; the last means of exiting is that a company can migrate to the main board if it meets the requirements.

Conclusion

The conclusion reached is that PSX primarily offers a totally integrated national trading platform that improves the operational efficiency of Pakistan’s Capital Market. After combining KSE, LSE, and ISE into PSX, Pakistan has entered a new era of equity trading during the present financial year.

Our Professional Team

One seeking assistance in the spheres relevant to Capital Markets, as well as other allied matters, might contact our professional legal team at SARDAR KHAN & CO. As per their expectations, our team’s experience, credibility, and tireless effort would be invaluable to the customers.