The Karachi Stock Exchange was established on 18 September 1947 — only a month after the independence of the country. Starting with five listed companies and a total market capitalisation of 37 million, traders started to buy and sell shares on the ‘’open outcry’’ system.

It was not until 2002 that the fully automated trading system — the Karachi Automated Trading System or KATS was launched that could handle one million trades a day. The earliest brokers who got together and launched the stock market were mainly immigrants from Bombay — Parsis, Memons, Gujratis who would stroll lazily in the market at half-past ten in the morning and enter into stray transactions. Although the market would open be till late afternoon, all business would be brought to an abrupt halt if an old ailing broker were to pass away; the market would be closed down immediately to mourn the death. A doddering old-timer who still frequents the market chatters excitedly when asked about the good old days of the market. “Those were the days when a broker’s word was considered his bond,” he says.

The opening up of the stock market to foreign investors initiated by the government of Benazir Bhutto in the early nineties put life into the market as dollars came pouring in. The scrips mainly in the textile sector that were trading at dirt-cheap prices were accumulated by the shrewd brokers who seized the opportunity to tie up with international brokerage houses and sell shares in big blocks at many times the original values.

In Bangladesh, 2.5 million people trade in shares — ten times that of PSX

The old-timer tells innumerable tales of how many brokers changed from proprietorship to companies limited by shares. Many tales of rags to riches emerged. To keep all wealth within a closed circle, the membership of the Karachi Stock Exchange was fixed at 200. The price of the membership card multiplied from few thousand to millions of rupees.

Later the Karachi Stock Exchange, Lahore Stock Exchange and Islamabad Stock Exchange were integrated under the Stock Exchanges (Corporatisation, Demutualization and Integration) Act, 2012 to form the Pakistan Stock Exchange. In 2016, some 40 per cent of strategic shares in the Pakistan Stock Exchange (PSX) were sold to a Chinese consortium comprising three exchanges — China Financial Futures Exchange Company Ltd (the lead bidder), Shanghai Stock Exchange and Shenzhen Stock Exchange — at a bid price of Rs28 per share. They sold a total of 320m shares that cost the consortium Rs8.96 billion. In the bringing of Chinese ownership, there were great expectations of the flow of new investment, experience, technological assistance and new products like options and futures in the PSX. There was also talk of cross-border listings of securities. But more than four years on, nothing of significance has happened.

The number of companies listed on the Pakistan Stock Exchange count 558 with a market capitalisation of around $45bn. The National Clearing Company of Pakistan (NCCPL) recently disclosed that on April 30, 2021, active Unique Identification Numbers (UINs) — allotted to each investor stood at 252,322 — and increased to 256,954 UIN by the end of June. These included, until April, individual accounts at 232,799, corporate company accounts at 1,722, others at 1,436, foreign individuals 12,356 and accounts opened through the Roshan Digital Accounts 3,778.

At just around 250,000, the number of investors in PSX and its market capitalisation is woefully small. Compare it to Dalal Street in Mumbai which boasts a market capitalisation of $3.2 trillion. Even in Bangladesh, 2.5 million people trade in shares — ten times that of the PSX.

Some senior serious participants believe that no concerted effort has ever been made to attract new investors. Until the current strict regulations and surveillance was put in place small investors who dared to venture into the market found their fingers burnt either in regular market crashes

seen every few years or they were robbed of all their life-long savings by unscrupulous brokers like Munir Ladha of Eastern Capital Limited that fled with billions of rupees of investors’ money, never to return.

The Securities and Exchange Commission of Pakistan (SECP) takes pride in posting figures of newly registered companies, while the total registered companies in July 2021 was 147,842. Given that only 558 companies have entered the stock market to mobilise capital, registered companies decidedly have no penchant to seek listing. If the market was completely unregulated until early 2000, most people and sponsors see it as over-regulated now. The code of corporate governance was already cumbersome, but more regulations have been added in the garb of preventing money laundering.

The optimists among market participants believe that things could gradually change for the better as regulators introduce new rules to facilitate foreign investors to enter the stock market. Already in 2020-21, companies were able to mobilise record Rs56bn through public offerings and Rs45bn through the right issues; both the number of offers and the amount raised was reported to be the highest in five years. The market has an appetite for new products, though those that have been launched met with mixed success. The recent changes in 60-90 days’ roll-over regulations could provide investors reason to go long and discourage excessive speculation that always tends to bring grief to the small investors.

Published in Dawn, The Business and Finance Weekly, August 16th, 2021