SEMINAR ON CAPITAL MARKETS AND MUTUAL FUNDS AT ICMA PAKISTAN, ISLAMABAD MARCH 26, 2015 1 2 DISCLAIMER The purpose of this session is to create awareness and education about capital market and in no way to invite or solicit investment in capital market. Please note that investment in capital market is subject to risk and therefore any decision for investment shall be taken with due care. The views expressed herein are those of the presenters and do not necessarily reflect the views of the Securities and Exchange Commission of Pakistan (SECP) or its employee. PRESENTATION PLAN 3 Investor Understanding Mutual and Education Capital Market Pension Funds Program Operations in Pakistan INVESTOR EDUCATION PROGRAM 4 Investor Education: Financial Inclusion 5 Share of Population with Formal Financial Access (%) 14% in Pakistan (Lowest in the Region) 3 Regional Comparison 6 Indicator Pakistan Turkey Bangladesh Thailand Population 187,000,000 73,722,988 158,570,000 66,870,000 194,000 4,132,704 2,804,629 3,050,000 # of Investors (.13%) (5.6%) (1.77%) (4.6%) Insurance 0.7% 1.28% 0.94% 4.1% Penetration # of CIS Unit 140,000 3,626,017 1,550,000 N/A Holders (.075%) (4.9%) (2.3%) Participants of 2,000 2,638,310 3,400,000 N/A Pension Funds (.001%) (3.6%) (5.1%) Savings Rate 13.8% 12.7% 19% 30.7% Literacy Rate 56% 90.8% 48.8% 93.5% 5 7 180 Million Population 11 Million Global ranking is 27 30 Million 2 Million Internet Users 9th most visited website 15 Million Mobile Web Users PAKISTAN 20th largest country on internet Facebook Internet 16.7% 36% Penetration of Penetration Internet Users Facebook 6.1% Penetration of Total Population TARGET MARKET 8 Youth,School & College SalariedClass students Tradersand Professionals Businessmen Non Resident Pakistani 9 INVESTOR EDUCATION PROGRAM Objectives Educate and create awareness amongst general public about saving and investment including financial planning and budgeting Increase awareness about the financial markets (capital market, non-banking financial and insurance sectors) and how to go about making an investment Educate target groups about different financial products; risks involved; rights and responsibilities and investor protection services Build investor confidence in capital market, non-banking financial and insurance sectors. INVESTOR EDUCATION PROGRAM LOGO 10 PROGRAM NAME & TAGLINE 11 Jama Punji Jamapunji, an urdu word meaning “all savings”. The term is mostly used in connotation of lifelong savings of an individual. The mid age group of the target audience take this word as life-long savings and the younger group identifies the term as savings till date. FEATURES OF IEP 12 Ø Under the IEP, education would be imparted through: Ø Digital Means : Ø Web Portal Ø Mobile Applications Ø SMS Ø Social Media Ø Physical Interaction Ø Seminars, Investor Days, Workshops DIGITAL MEANS FOR INVESTOR EDUCATION 13 1. WEB PORTAL The Web Portal, through subscription by participants, shall be a source of data to tap potential investors and deepen the capital market of Pakistan. Features of Web-Portal Public/ Private Member Area Education Center Mock Trading Platform Risk Profiler & Scam Meter Quizzes & Games Publications News & Alerts Live Chat Window Media Center (Documentaries, Videos, Webcasts & Podcasts) Poll and Surveys DIGITAL MEANS FOR INVESTOR EDUCATION 14 2. SMS SHORT CODE/MOBILE PLATFORM PTA approved mobile short code service in multi language connect with existing/potential investors & insurance consumers promote investor & insurance education awareness & protection campaign. provide a platform to report complaints. Investor alerts/notifications/news DIGITAL MEANS FOR INVESTOR EDUCATION 15 3. Mobile Applications Mobile applications shall be developed and made available to registered users. Features include: Scam meter Branch locator Verification of market participants Games DIGITAL MEANS FOR INVESTOR EDUCATION 16 4. Social Media Investor Education Web Page Setup & Design Facebook , Twitter & LinkedIn Page Management Promotional activities Placement of digital advertisements PHYSICAL MEANS FOR INVESTOR EDUCATION 17 Targeting General public, Corporate Institutions, Clubs, Associations, etc. and Students of universities and schools ü Seminars ü Conferences ü Lecture Series ü Quizzes/Competitions CAPITAL MARKET OPERATIONS 18 19 Area of Discussion • Understanding • Working of • Investor Capital Market Stock Market Protection 1 2 3. The Capital Market An Introduction 20 A capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds from general public (Investors). It is defined as a market in which money is provided for periods longer than a year. Primary Market Market of New Issues Public Offerings Secondary Market Market of Existing Securities Trading of Listed Securities Importance of Capital Market 21 Channelize Savings Fund raising Option Investment Avenue Secondary market benefits Bank Based vs Market Based 22 Instruments of Capital Market Equities Common Shares/Ordinary Shares Preference Shares Debt Securities Corporate bonds//Sukuk Govt bonds/Sukuk Derivatives Futures Contracts Stock & Index Futures Stock and Index Options Exchange Traded Funds Participants of Capital Market 23 Service Issuers Investors Providers Providers of Users of Funds SROs funds Companies Intermediaries Individual Support Substantial services Institutional shareholders providers Opportunities for Issuers 24 • Initial public offerings (IPOs)- Companies may require funds for expansion / new projects • Offer for sale of Shares – Sponsors of successful companies may want encash their investments • Minimum Capital of Rs.200 million • Approval of Prospectus from SECP • Approval of Listing from Stock Exchange • Listing of Debt Securities for General Public • Listing of Debt Securities for Sophisticated Investors • Listing of small and medium enterprises on SME Board Opportunities for Service Providers 25 Self Regulatory Organizations • Stock and Commodity Exchanges • Clearing and Depository Companies Intermediaries • Stock and Commodity Brokers • Agents of Stock Brokers • Clearing and Custodian Members Support services providers • Credit Rating Agencies and Auditors • Consultants, Advisors, Lead Managers & Book Runner • Balloters, Transfer Agents & Underwriters Opportunities for Investors 26 Direct Indirect Investment Investment Stock Market Mutual Funds • Dividends • Equity Funds • Capital Gains • Debt Funds • Fixed Returns • Money Market • Speculation Funds etc. 27 Self Regulatory Organizations Karachi Stock Exchange Ltd established in 1947 Lahore Stock Exchange Ltd established in 1970 Islamabad Stock Exchange Ltd established in 1989 Central Depository Company of Pakistan Limited established in 1997 National Clearing Company of Pakistan Limited established in 2001 Pakistan Mercantile Exchange Limited established in 2002 and operations started in 2007 28 Karachi Stock Exchange Limited 29 Organization Structure Regulatory Chief Regulatory 6 appointed by SECP 4 elected by Affairs Officer Shareholders 01 being Chief Executive Commercial Managing Affairs Director Board of Director Company Secretary Internal Audit 30 Market Segments Equity Derivatives Bonds SME 31 KSE Trading Platforms Karachi Bonds Deliverable Over-the- Automated Automated Futures counter System System Market (OTC) (KATS) (BATS) (DFM) Market 32 Transaction Flow at KSE Risk Transmission Trading Reporting Management of Data to Engine Engine System NCCPL 33 34 NCCPL Organization 9 elected by Shareholders Board of 1 nominated by SECP Directors 1 being CEO Chief Audit Executive Committee Officer Chief Chief Chief Internal CFO/Company Information Operating Auditor Secretary Officer Officer 35 NCCPL Membership Types Broker Clearing KSE Brokers Member (BCM) LSE Brokers ISE Brokers Non-Broker Banks Clearing Financial institutions Member (NBCM) Mutual funds Custodian City Bank Clearing Standard Chartered Member (CCM) Douche Bank Clearing Members 36 Types of Transactions at NCCPL Exchange Non-Exchange Leverage Trades Trades Market Institutional Regular or Margin Trading Delivery System Ready System (MTS) (IDS) Margin Futures Market IDS for CCMs Financing System (MFS) Broker to Broker Securities Negotiated Deal Settlement Lending & Market (NDM) (B2B) Borrowing (SLB) 37 NCCPL Work Flow Trading Preparation Auto Pay Automated data from of Balance and Collect Securities Stock Order System Settlement Exchanges 38 CDC Membership Types 39 Central Depository System (CDS) Account-holders Participants Issuers/Registrars Pledgees Main Account Main Account Debt Securities Banks/DFIs House Account House Account Equity Securities Stock Exchanges Sub-accounts Private Co Sec Clearing Company 40 Kinds of CDS Transactions Automated Settlement Transactions Free-Delivery Securities Transactions Corporate Actions related Transactions Other Transactions e.g. conversion, merger 41 CDC Services Custodial RTA Services Services Trustee IT Services Services 42 43 PMEX The Only Commodity Exchange Governance Structure Regulation of Members/Brokers Trading, Clearing and Settlement 44 PMEX Products Cash Settled Deliverable Futures Futures Contracts Contracts 45 46 Access Flow Stock Market Broker Investor 47 MARKET OPERATING SYSTEMS Risk Trading Manageme Systems nt System Clearing Depository and System Settlement Trade Flow 48 Securities Obligation Money Obligation Clearing & Settlement Trading FUNCTIONS OF A BROKER 49 Broker Stock Central Clearing Exchange Depository Company Clearing TREC holder Participant Member Automated Central