Pakistan Stock Exchange Report

The Pakistan Stock Exchange (Guarantee) Limited




Annual Report 2011


NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
VOLATILITY of the UNKNOWN means you
need to be flexible in product substance
as well as marketing approach
Ian Robertson
Head of Marketing & Sales
BMW
The main risks in investing (are) two: the
risk of losing money and the risk of
missing opportunity. It’s possible to
largely eliminate either one, but not both
Howard Marks
Chairman, Oaktree Capital Management
The Most Important Thing c 2011
Columbia Business School Publising
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
Vision & Mission 01
Corporate Information 02
Board of Directors 04
Directors’ Profiles 05
Management Team 16
About KSE 17
Key Development & Events 19
Notice of Annual General Meeting 23
Directors’ Report 27
Market Highlights 36
Financial Highlights (Six years at a glance) 46
Review Report of Auditors to Members on Statement of
Compliance with Best Practices of Code of Corporate Governance 47
Statement of Compliance with Best Practices of Code of
Corporate Governance 48
Auditors’ Report 51
Financial Statements 52
CONTENTS
VISION AND MISSION
Vision
To be a leading financial institution, offering efficient, fair and transparent
securities market in the region and enjoying full confidence of the
investors.

Mission Statement
To strive to provide quality and value-added services to the capital
market in an efficient, transparent and orderly manner, compatible
with international standards and best practices;
To provide state-of-the-art technology and automated trading operations,
driven by a team of professionals in accordance with good corporate
governance;
To protect and safeguard the interests of all its stakeholders, i.e.
members, listed companies, employees and the investors at large;
and .
To reflect the country’s economic health and behavior and play its role
for the growth, development and prosperity of Pakistan.


The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
02
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
BOARD OF DIRECTORS
Mr. Muneer Kamal (Chairman)
Mr. Nadeem Naqvi (Managing Director)
Mr. Ashraf Bava
Mr. Shazad G. Dada
Mr. Abid Ali Habib
Mr. Muhammad Qasim Lakhani
Mr. Abdul Qadir Memon
Mr. Zafar S. Moti
Mr. Asif Qadir
Mr. Mohammed Sohail
COMPANY SECRETARY
Mr. Muhammad Rafique Umer
AUDIT COMMITTEE
Mr. Abdul Qadir Memon (Chairman)
Mr. Shazad G. Dada
Mr. Muhammad Qasim Lakhani
Mr. Asif Qadir
Mr. Mohammed Sohail
Mr. Muhammad Rafique Umer (Secretary)

HUMAN RESOURCES COMMITTEE
Mr. Muneer Kamal (Chairman)
Mr. Ashraf Bava
Mr. Shazad G. Dada
Mr. Abid Ali Habib
Mr. Muhammad Qasim Lakhani
Mr. Nadeem Naqvi
Mr. Asif Qadir

LEGAL ADVISORS
Ghani Law Associates,
Industrial Relations Advisors
Ijaz Ahmed & Associates,
Advocates & Legal Consultants
Mansoor Ahmed Khan & Co.,
Advocates & Legal Consultants
Sayeed & Sayeed,
Advocates & Legal Consultants

AUDITORS
Ernst & Young Ford Rhodes Sidat Hyder,
Chartered Accountants
BANKERS
Allied Bank of Pakistan Limited
Askari Bank Limited
Bank Al Falah Limited
Bank Al Habib Limited
Bank Islami Pakistan Limited
Habib Bank Limited
Habib Metropolitan Bank Limited
JS Bank Limited
KASB Bank Limited
MCB Bank Limited
NIB Bank Limited
Soneri Bank Limited
Summit Bank Limited
United Bank Limited

REGISTERED ADDRESS
Stock Exchange Building,
Stock Exchange Road,
Karachi-74000
Phone : (92 21) 35205528-29
UAN : (92 21) 111001122
Fax: (92 21) 32410825
E-MAIL
info@kse.com.pk
WEBSITE
www.kse.com.pk

CORPORATE INFORMATION
03
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
04
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
BOARD OF DIRECTORS
Sitting (from left to right)
Mr. Zafar S. Moti
Director
Mr. Asif Qadir
Director
Standing (from left to right)
Mr. Muhammad Qasim Lakhani
Director
Mr. Nadeem Naqvi
Managing Director
Mr. Muneer Kamal
Chairman
Mr. Mohammed Sohail
Director
Mr. Abdul Qadir Memon
Director
Mr. Muhammad Rafique Umer
Company Secretary
Mr. Abid Ali Habib
Director
Mr. Shazad G. Dada
Director
Mr. Ashraf Bava
Director
05
Mr. Muneer Kamal, the Chairman of Karachi Stock Exchange, has over
31 years of extensive experience in banking and financial sector. His
career started with Citibank where, between November 1979 and July
1994, he served locally and internationally on various senior positions
including his term as Director, Head of Country Public Sector and
Financial Institutions. During this association, he also attended a number
of training courses / programs in Far East, Middle East and Africa. .
Mr. Kamal then joined Faysal Bank Limited as President/CEO and led
it to spread out its operations from 3 branches to 11 and also expanded
the balance sheet size from Rs.3 billion to Rs.30 billion. .
Mr. Kamal also held position of President/CEO, and then as Vice
Chairman and Chief Operating Officer (International) of the Union Bank
Limited, where he had been instrumental in various acquisitions done
by Union Bank Limited i.e. Bank of America, American Express Credit
Cards, Emirates Bank International and Mashreq Bank, Sri Lanka. As
a result, Union Bank appeared as a success story and was ably acquired
by Standard Chartered Bank.
After his stint with Union Bank, Mr. Kamal, an MBA from University of
Karachi, began his current association with KASB Group first as
President/CEO of KASB Bank Limited from November 2005 to August
2010 and now as Vice Chairman of the Group. For KASB Bank, he
again oversaw the manifold expansion of operations coupled with
acquisition of other entities and introduction of new and modern products,
services, policies, procedures and systems. As Vice Chairman of KASB
Group, he is responsible for business development and growth of group
entities along with the strategic relationship with affiliates. As such, the
Presidents/CEOs of all group companies report to him. .
Mr. Kamal also holds positions as Chairman of Pakistan Export Finance
Guarantee Agency Limited, as Member Resource Committee of Aga
Khan University, and as Trustee of Shaukat Khanum Memorial Cancer
Hospital & Research Centre. He is Director of Asia Care and New
Horizon Exploration & Production Limited. He is also on the Board of
National Industrial Parks Development and Management Company.
Besides holding the position of Chairman, Mr. Kamal is also the Chairman
of Human Resources Committee and Defaulters’ Committee of KSE’s
Board.
Mr. Muneer Kamal
Chairman

DIRECTORS’ PROFILES
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
06
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
DIRECTORS’ PROFILES
Mr. Nadeem Naqvi holds the degrees of M.B.A. in Finance and B.Sc.
with honours in Banking and International Finance from The City
University, CASS Business School in London, United Kingdom. He
brings with him a rich work experience of over 28 years in financial
services industry operating in diverse environments of Middle East,
North America and Europe besides that of Pakistan.
Mr. Naqvi carries a proven track record of establishing successful
business organizations and turning around mediocre or dormant ventures
into vibrant units. His last assignment, before joining Karachi Stock
Exchange, was as the Chief Executive Officer of a leading asset
management company in Pakistan. Earlier, he was involved in settingup
a brokerage house for overseas investors. He has also served as
Chief Executive Officer of AKD Securities Limited which he was able
to transform from a proprietary business into a full-scale investment
banking and brokerage firm and in the process, gained company's
recognition as the best domestic brokerage house for two consecutive
years. Mr. Naqvi, also served as Chairman of the first technology venture
capital fund of Pakistan.
Market analysis and research has been the hallmark of Mr. Naqvi's
career. He has led an independent investment research firm in
USA/Canada which was ranked in 2004 by 'BusinessWeek' as the third
best out of 300 independent research firms in North America before
which he headed the Merrill Lynch Pakistan research team. He was
also the Head of Research of the advisory company of Morgan Stanley
Asset Management's Pakistan Investment Fund and prior to that worked
at BMA Capital Management Limited as Head of Research. .
In Pakistan, Mr. Naqvi has been involved in landmark investment
transactions, including the privatization of Kot Addu Power Plant, National
Refinery and United Bank. His association with the capital markets is
also longstanding where he served in committees of Karachi Stock
Exchange and was a member of the Capital Markets Committee. .
In addition to acting as Managing Director of KSE, Mr. Naqvi is the
Chairman of Voluntary De-listing Committee and the member of Human
Resources Committee, Investment Committee, Board's Committee for
hearing appeals of members, Board's Committee for handling cases of
suspension, expulsion & imposition of fines and Index Experts Committee.
He is also KSE's nominee director on the Board of Central Depository
Company of Pakistan Limited, National Clearing Company of Pakistan
Limited and Institute of Capital Markets.
Nadeem Naqvi
Managing Director
07
DIRECTORS’ PROFILES
Mr. Ashraf Bava is the CEO and major shareholder of Nael Capital
(Private) Limited with first-hand market experience of over 15 years.
Mr. Bava's association with Pakistan's capital markets dates back to
August 1995 when he joined AKD Securities as Equity Salesperson
where he continued till June 1997. He then worked as Senior Equity
Salesperson for Westminster & Eastern Financial Services and Invest
Capital Securities (Private) Limited for brief periods before joining
Indosuez WI Carr Securities (Private) Limited, now Elixir Securities
Pakistan (Private) Limited, in August 1999. In October 2005, he was
appointed as the Chief Executive of Elixir Securities and served in that
capacity until February 2008. Thereafter, Mr. Bava founded Nael Capital
to pursue his own business in equity markets.
Mr. Bava has done his BBA (Hons.) and an MBA with majors in marketing
from Institute of Business Administration (IBA), Karachi in 1994. He is
also a Chartered Financial Analyst (CFA) from CFA Institute, USA. He
is on the Board of CFA Association of Pakistan and under its banner,
has organized seminars and workshops on various topics of finance.
He has also attended a number of conferences around the world on
subjects of finance. Previously, Mr. Bava has assisted in courses on
'Introduction to Business Finance' and 'Corporate Finance' at IBA,
Karachi.
Mr. Bava is the Chairman of KSE's Development & Trading Affairs
Committee and a member of Human Resources Committee and
Demutualization Committee. He has also been nominated on the Board
of National Clearing Company of Pakistan Limited by the KSE Board.
Mr. Ashraf Bava
Director
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
08
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
DIRECTORS’ PROFILES
Mr. Shazad Dada is the Chief Executive Officer of Barclays Bank
Pakistan, with overall responsibility for managing all its businesses
including Corporate, Investment Banking and Retail. Mr. Dada, a
seasoned banker and a prominent capital market professional, started
his banking career in the USA after joining Bankers Trust in 1990, which
was later acquired in 1999 by Deutsche Bank AG. Since 2005, he was
working in Pakistan as the Chief Country Officer and Head of Global
Banking Deutsche Bank. Prior to taking up the role in Pakistan, Mr.
Dada was a Managing Director in the Mergers, Acquisitions and Corporate
Advisory Group at Deutsche Bank Securities, Inc. in New York and was
the Head of Media M&A practice in Americas.
Mr. Dada graduated with honors from University of Pennsylvania with
a dual Bachelor of Science and Bachelor of Arts degree and has gained
an MBA from The Wharton School, University of Pennsylvania. .
He has been contributing towards the development of the Pakistani
financial market and continues to do so as the Vice-Chairman of the
Pakistan Banks' Association and Council Member and Chairperson -
Finance Committee of The Institute of Bankers Pakistan. .
The Board of Directors of KSE has appointed Mr. Dada as member of
its Audit Committee, Human Resources Committee and Index Experts
Committee.
In addition to his commercial interests, Mr. Dada is an active supporter
of a number of charitable organizations. He actively contributes towards
the community and plays his part as Chairperson of Developments in
Literacy, and as Director of AIESEC.
Mr. Shazad G. Dada
Director
09
DIRECTORS’ PROFILES
Mr. Abid Ali Habib is the Chairman and Chief Executive of Abid Ali
Habib Securities (Private) Limited and the Director of Aba Ali Habib
Securities (Private) Limited; both being the corporate members of Karachi
Stock Exchange and Pakistan Mercantile Exchange (formerly: National
Commodity Exchange).
Mr. Habib holds a Master's degree in Business Administration with
majors in Finance. He also attended 7th Annual Pacific Capital Market
Research Centre's Finance Conference held in Manila, Philippines in
1995, where noted academicians, analysts, regulators and practitioners
of capital markets participated.
Mr. Habib has been an active member of the Exchange. He has been
elected as Director of KSE for the years 1995, 1997, 1998, 2002, 2005,
2006 and 2010. During these terms, he has chaired various Committees
constituted by the Board such as Modernization Committee (1995), New
Product Committee (1997), KSE 100 Index Committee (1997),
Modernization & Building Committee (1998), Information Technology
Committee (2002), Development & Information Technology Committee
(2005-06), Companies Affairs & Corporate Governance Committee
(2010) and Board Committee for hearing appeals of members (2010).
He was responsible for conceptualization, planning and design of internet
based order routing system and has also supervised, implemented and
tested Karachi Automated Trading System (KATS).
Presently, Mr. Habib is the member of Human Resources Committee,
Taxation Committee, Investment Committee, Index Experts Committee
and Committee for handling cases of suspension or expulsion of members
and imposition of fines besides continuing as Chairman of Companies
Affairs & Corporate Governance Committee and as member of Board
Committee for hearing appeals of members and Demutualization
Committee. He has also been representing KSE on the Board of Central
Depository Company of Pakistan Limited since January 2010. .
Mr. Abid Ali Habib
Director
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
10
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
DIRECTORS’ PROFILES
Mr. Muhammad Qasim
Lakhani
Director
Mr. Muhammad Qasim Lakhani has over 10 years of experience in
equity broking, fund management and corporate planning. Mr. Lakhani
started off his career with equity research in First Capital ABN-AMRO
Equities, from where he moved on to join JP Morgan Pakistan (then
Jardine Fleming Pakistan Broking) on the international sales desk,
servicing foreign institutional investors. Subsequently, he worked for
top-tier names like Engro Chemical (corporate planning) and PICIC
(equity portfolio management), before moving onto Elixir Securities
Pakistan.
During his stay at Elixir, Mr. Lakhani headed the company's Research
Department and was involved in the preparation of business plan / study
of asset management business for a large business group of Pakistan.
In March 2007, he co-led the acquisition of Fortune Securities by a
consortium of investors, and continues to head Fortune.
Mr. Lakhani is an MBA from the Institute of Business Administration
(IBA), Karachi and also a Chartered Financial Analyst (CFA). .
At KSE, Mr. Lakhani is the Chairman of Advisory & Arbitration Committee
and member of Audit Committee, Human Resources Committee, Taxation
Committee and Demutualization Committee. Moreover, he represents
KSE on the Board of JCR-VIS Credit Rating Company Limited.
11
DIRECTORS’ PROFILES
Mr. Abdul Qadir Memon is a fellow of the Institute of Taxation
Management of Pakistan and a commerce graduate from the University
of Karachi. He is a renowned tax and corporate laws expert and a senior
resource.
Mr. Memon has been running a tax and corporate laws consulting firm
under the name and style of A. Qadir & Company for more than 30
years. He possesses in-depth knowledge of tax and corporate laws and
provides a wide range of services to his clients including rendering
opinions and offering advices on various aspects and implications of
the tax & corporate laws and related matters.
Mr. Memon has held the position of President, Pakistan Tax Bar
Association where previously, he has also served as Senior Vice
President. He has also held the offices of Vice President, Secretary
General and President of Karachi Tax Bar Association during various
terms. He has served as President of Junior Chamber International
Pakistan and Memon Professional Forum.
With his expertise, Mr. Memon makes his contribution at different
governmental and non-governmental forums. He is a member of the
Advisory/Taxation Committees of the Revenue Advisory Council of
Ministry of Finance, Federation of Chamber of Commerce & Industry
and Karachi Chamber of Commerce & Industry besides being a member
of the Federal Board of Revenue's Alternative Dispute Resolution
Committee.
Mr. Memon has presented many papers on the subjects of taxation,
corporate laws and individual development. He has widely travelled and
attended many national and international conferences and seminars.
Mr. Memon is a member of Management Association of Pakistan,
Karachi Tax Bar Association and Institute of Taxation Management of
Pakistan. He is also a life member of Memon Professional Forum, Junior
Chamber International, Pakistan, the Arts Council of Pakistan and
Pakistan Billiards & Snookers Association.
At KSE, Mr. Memon is the Chairman of Audit Committee as well as
Taxation Committee and the member of Investment Committee. Mr.
Memon has also been nominated by KSE Board as director on the
Board of National Clearing Company of Pakistan Limited where he is
serving as the Chairman of the Board.
Mr. Abdul Qadir Memon
Director
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
12
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
DIRECTORS’ PROFILES
Mr. Zafar Moti, the Chief Executive of Zafar Moti Capital Securities
(Private) Limited, holds an MBA degree from Institute of Business
Administration (IBA) and was the treasurer for BASE, a student body
of IBA. He carries with him over 20 years of capital market experience.
Although Mr. Moti acquired memberships of Karachi Stock Exchange
(KSE) and Lahore Stock Exchange (LSE) in 1989, he had already been
actively engaged in the family stock brokerage business since 1981.
His active involvement in capital market development is evident from
his various appointments. He has held the office of Director-KSE for the
years 1992, 1994, 2002 and 2009 and LSE for the year 1993. .
Mr. Moti was also the director for Central Depository Cell during 1993
and the Chairman of New Products Committee at KSE in 1995. In
addition, he is the founder member of Pakistan Mercantile Exchange
(formerly: National Commodity Exchange).
At present, Mr. Moti is holding the Chairmanship of Demutualization
Committee and membership of Taxation Committee of KSE. Additionally,
he has also been nominated to represent KSE on the Board of Central
Depository Company of Pakistan Limited.
Mr. Zafar S. Moti
Director
13
DIRECTORS’ PROFILES
Mr. Asif Qadir
Director
Mr. Asif Qadir holds a degree in Chemical Engineering from Columbia
University, New York and has over 30 years of management and
marketing experience in the chemical and fertilizer sector. .
Mr. Qadir's career began at Exxon Chemical Pakistan Limited in August
1978. At Exxon, he worked in various capacities including as Worldwide
Business Advisor for Exxon Chemicals as well as for Esso Chemical
Alberta Limited of Canada.
Mr. Qadir went on to join Engro Chemical Pakistan Limited (now Engro
Coporation Limited) where he has become one of the key management
figures. Currently, Mr. Qadir is the CEO/President of Engro Polymer &
Chemicals Limited and is also serving as Senior Vice President of Engro
Corporation in addition to serving on the Boards of various subsidiaries
and affiliates.
Mr. Qadir is also on the Board of Pakistan Poverty Alleviation Fund and
in the past, has served as the President of Management Association of
Pakistan from 2007 to 2009; and on the Executive Committee of Overseas
Investors' Chamber of Commerce & Industry from 2006 to 2009.
The Board of KSE has appointed Mr. Qadir as the Chairman of the
Committee for hearing appeals of members as well as the Committee
for handling cases of suspension or expulsion of members & imposition
of fines. He is also the member of Audit Committee and Human Resources
Committee of KSE Board.
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
14
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
DIRECTORS’ PROFILES
Mr. Mohammed Sohail
Director
Mr. Mohammed Sohail is the Chief Executive Officer of Topline Securities
(Private) Limited with an extensive experience of over 16 years in
Pakistan's capital markets, research and broking.
Before joining Topline Securities, he has worked as Director Broking
with JS Global Capital Limited and as Head of Research at Invest Capital
Investment Bank Limited.
Mr. Sohail is regarded as one of the prominent capital market analysts
of the country. He is the first to be awarded 'Best Analyst' by CFA
Association of Pakistan for two years running (2003 and 2004). In 2008,
Asiamoney included him amongst the Best Salespersons in Pakistan.
Previously at KSE, he has served as member of various committees
including New Product & Market Development Committee in the year
2010. Moreover, he has served on different committees formed by the
Securities & Exchange Commission of Pakistan (SECP) and State Bank
of Pakistan (SBP).
Mr. Sohail is also a visiting faculty member at Institute of Business
Administration (IBA) and a member of Board of Studies for Accounting
and Finance at College of Business Management (CBM), Karachi. .
Mr. Sohail has been appointed by KSE Board as the Chairman of Market
Development & New Products Committee and Investment Committee
of the Exchange. In addition, he is the member of Audit Committee,
Taxation Committee, Index Experts Committee, Voluntary De-listing
Committee, Committee for hearing appeals of members and Committee
for handling cases of suspension or expulsion of members & imposition
of fines and Demutualization Committee. Also, he has been nominated
as director on the Board of Pakistan Mercantile Exchange (formerly:
National Commodity Exchange). .
15
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
16
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
MANAGEMENT TEAM
Sitting
Mr. Nadeem Naqvi
Managing Director
Standing (from left to right)
Mr. Mansoor Ali
DGM - Information Technology
Mr. Haroon Askari
Deputy Managing Director-Equity
Market
Mr. Muhammad Rafique Umer
Company Secretary and
GM - Law & Corporate Affairs
Mr. Ahmed Ali Mitha
Chief Financial Officer
Mr. Farhan Ansari
Head - Internal Audit
Mr. Shafqat Ali
GM - Risk Management and
Market Control & Surveillance
Mr. Sani-e-Mehmood Khan
GM - Product Development,
Research and Marketing
Mr. Abbas Mirza
DGM - Operations
Mr. Muhammad Ghuffran
DGM - Companies Affairs
Mr. Nisar Qazi
DGM - Administration
Mr. Abdullah Jan Farooqui
GM - Information Technology
17
ABOUT KSE
The Karachi Stock Exchange (KSE) is Pakistan’s oldest and largest stock exchange. Incorporated in 1949 as
a Company Limited by Guarantee. KSE is the premier stock exchange in Pakistan offering a range of high quality
products and services that has enabled it to become the leading hub of capital formation in the country.
KSE offers companies and investors an efficient and transparent securities market for raising capital and achieving
investment objectives. Companies listed on the KSE are present in all aspects of our lives and are amongst
Pakistan’s most well known, largest and most innovative companies.
KSE remains the pioneer of Pakistan’s Capital Market Developments by introducing new products, constantly
upgrading technology infrastructure through partnerships with the world’s leading technology companies and
through the continuous assessment and improvement of services, catering to every segment of customers’
needs.
Exchange owned by 200 members
639 companies listed
4 indices
KSE 100
KSE 30
KSE All Share Index
KMI 30
Modern Risk Management System
VaR based margin collection
Pre-trade margin verification
Client level margining system
KSE is FIX Compliant
Electronic Trading through KATS
Market capitalization:
US $ 38.24 billion (June 30, 2011)
Incorporated on March 10, 1949
First Stock Exchange of the country
Started with 5 companies that had a paid up capital of Rs. 37 million
Trading was done through an open-out-cry system
The first index was the KSE 50 Index
Publicly Listed Company with Strategic Investor
Products to include:
Options
Exchange Traded Funds (ETFs)
Tradable Sector Indices
Fixed Income Derivatives
Broad based investor participation
Cross border listings of companies
Opening of offices in other cities and in the region
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
18
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
PRODUCT & SERVICES
KSE offers a range of products to its investors through a state of the art technology infrastructure. Market
participants (both local and international) are provided access to these products through various distribution
channels of the brokerage houses.
Our Trading products include:
Equities (otherwise known as the Ready Market)
Deliverable Futures Contracts
Cash Settled Futures
Stock Index Futures Contracts
Bond Trading
KSE plans on introducing the following new products in the year 2011-2012
Trading based on sector indices
Exchange Traded Funds
Options
The KSE also offers a number of data products and services providing both historical and "live" data feed to its
customers. Additional services being offered to customers by the organization include: .
Technology services by I.T. help desk
Customer Services & Investor Relations Services to help resolution of investor complaints and queries
Investor Education programs
Fully automated
trading, clearing
and settlement
system
Internet routed
trading facility
KSE is FIX
compliant
Brokers
connectivity to
KSE through
VPN (to ensure
security of
data)
Order-driven
system
Internet trading
facilities
available
Investors and
fund managers
can also access
information
through Display
Only Terminal
Gateway trading
(Order
Management
System)
Customized
services and
state of the art
technology
insfrastructure have
given us an edge
over other
exchanges in
the region
MARKETS CURRENTLY OFFERED TO INVESTORS BY KSE KSE'S INVESTOR SERVICES
Debt Market
Stock Index
Futures
Ready
Market
Cash
Settled
Futures
Deliverable
Futures
19
KEY DEVELOPMENT & EVENTS
NEW PRODUCTS AND SERVICES
The Management remains focused on working with all stakeholders to restore volumes and liquidity to the market,
which is KSE's biggest challenge. The KSE-developed and implemented roadmap during 2010-11 to address
the liquidity and volume crisis which include the launch of Margin Trading, Margin Financing and Securities
Lending and Borrowing products as some of the landmark initiatives. Additionally, KSE plans to launch ETFs,
Options & Islamic Equity Financing in the not too distant future.
Market Makers help inculcate confidence in investors to trade in the Capital Markets during times of distress,
particularly when volumes plunge due to the overall economic and security environment in the country. In this
connection, the Regulations for Market Makers have already been approved by the KSE Board and SECP. Market
Makers at KSE shall commit to maintain both sides of the order book for any given market, thus helping “the
Exchange” generate liquidity and also facilitating in kick-starting the existing and upcoming derivative products
offered to its investors.
Margin Trading is leveraged buying with the expectation of enhancing returns, but it is also risky. Margin trading
System (MTS) or leverage buying concept became an obvious need at Karachi Stock Exchange as volumes
shrunk noticeably due to discontinuation of leverage products during 2008. The new Margin Trading regulations
approved by SECP endeavor to strike a balance between enabling investors to have greater flexibility while
controlling potential systematic risk.
Stock Lending and Borrowing (SLB) allows the temporary exchange of securities with an obligation to re-deliver
the same securities in the same number and at an agreed rent on a future date. SLB is expected to bring liquidity
to the market and allow weak buyers to trade at KSE at a relatively low cost. This product has been recently
launched.
Margin Financing has been introduced to cater for financing needs of the brokerage houses and their clients,
as it allows monitoring and regulating the overall credit extended to and by the brokerage houses and additionally
it provides retail investors with easy access to capital.
QUALITY ASSURANCE AND RISK MANAGEMENT MEASURES
To enhance risk management measures at KSE, the management of the Exchange in conjunction with National
Clearing Company of Pakistan introduced an exposure drop-out facility for members who have met their settlement
obligations, which increases their capacity to trade and/or re-invest in the market due to prompt margin release.
The Exchange also developed an online reporting system to facilitate Brokerage Houses in complying with SECP
Rule 3(e) pertaining to intimation to the Exchange regarding any fall in the Net Capital Balance (NCB) below the
pre-defined limits, which shall facilitate in escalating trading activity at the Exchange. .
Although fraudulent transactions were only a minor fraction of the total transactions conducted at KSE, the
Exchange management is determined to minimize if not eliminate such transactions. In line with this objective,
the Exchange developed a rule based advance warning and control system capable of identifying suspicious
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
20
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
transactions automatically for further action by the staff. This has yielded tangible results and has facilitated the
Exchange to process and ultimately conclude over 400 cases at the basic inquiry level, around 100 cases with
warnings, 12 fined and 3 cases referred to the SECP.
INFORMATION SECURITY & I.T. ENHANCEMENTS
The management of the Exchange took several measures regarding conformance of information security standards
which alleviated the end-point security and enhanced Exchange's capacity to monitor and check any breach of
market sensitive information during trading. This includes strictly limiting access to trading data via an information
access matrix developed by the IT Division which requires prior authorization for data access and automatic
electronic audit trail logging; removal of external storage devices from staff PC's; strict limit on cell phone usage
in information sensitive departments; CCTV coverage in key areas, amongst other information security measures.
Moreover, two factor authentication with one time password along with accreditation of smart token for identification
and authentications of KATS users are some of key measures taken by Exchange with a view to enhance
information security. In terms of Business Continuity, the Exchange achieved its first milestone by coupling an
infrastructure which facilitates seamless and continued trading even in the event of a disaster. In continuation,
efforts are also being made to provide seamless transition and business continuity for clearing, settlement, online
deposits and release of collateral etc. in the near future.
21
PHOTO GALLERY
A group photo on the occasion of
Top Companies Award Ceremony at Aiwan-e-Sadr, Islamabad A view of 63rd Annual General Meeting
Mr. Cameron Munter, US Ambassador to Pakistan
addressing KSE Members
Visit of All Pakistan Textile Mills Association
KSE Board meets with
Chairman, Securities & Exchange Commission of Pakistan
Managing Director-KSE presents memento to
Provincial Finance Minister of Sindh on his visit to KSE
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
22
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
British Deputy High Commission visit to KSE
Group Photograph of Turkish Delegation’s visit to KSE
IPO – International Steels Limited held on June 1, 2011
IPO – Engro Foods Limited held on August 10, 2011
Visit of Trade Commissioner of Canada
IPO – Pakgen Power Limited held on July 21, 2011
23
NOTICE OF ANNUAL GENERAL MEETING
NOTICE is hereby given that 64th Annual General Meeting of the Karachi Stock Exchange (Guarantee) Limited
will be held on Monday, October 10, 2011 at 04:00 pm, at the Registered Office of the Exchange, at KSE
Auditorium, 3rd Floor, Stock Exchange Building, Stock Exchange Road, Karachi, to transact the following business:
Ordinary Business
1. To confirm the minutes of following meetings of the Exchange:
(a) Extraordinary General Meeting held on November 04, 2010, which was adjourned to November 22,
2010 and further adjourned to January 24, 2011
(b) Extraordinary General Meeting held on December 29, 2010
2. To receive, approve and adopt financial statements of the Exchange for the year ended June 30, 2011,
together with the Directors' and Auditors' Reports thereon.
3. To appoint auditors of the Exchange for the year ending June 30, 2012. The retiring auditors, M/s. Ernst &
Young Ford Rhodes Sidat Hyder, Chartered Accountants, being eligible, have offered themselves for reappointment.
Special Business
4. To consider and approve amendments in Article 22(d), Article 22(e), Article 22(g) and Article 28 of the Articles
of Association of the Exchange with reference to term of the Board of Directors of the Exchange and other
ancillary matters and for this purpose, to consider and if thought fit, to pass the following resolution, with
or without modification, as Special Resolution:
"RESOLVED THAT Article 22(d) of the Articles of Association of the Exchange be and is hereby amended
and substituted by the following:
(d) The term of the Board of Directors of the Exchange shall be three (03) years.
FURTHER RESOLVED THAT Article 22(e) of the Articles of Association of the Exchange be and is hereby
amended and substituted by the following:
(e) All retiring directors, whether elected, nominated or co-opted, shall be eligible for re-election or re-appointment,
as the case may be, for the subsequent term.
FURTHER RESOLVED THAT Article 22(g) of the Articles of Association of the Exchange be and is hereby
amended and substituted by the following:
(g) This Article shall take effect from 1st January 2012. The Board, as constituted for the calendar year 2011, shall
continue to hold office till December 31, 2011.
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
24
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
FURTHER RESOLVED THAT Article 28 of the Articles of Association of the Exchange be and is hereby amended
and substituted by the following:
28. The Exchange shall, in the manner hereinafter provided, elect by ballot, five (5) Directors, from amongst the
members of the Exchange, for each term of the Board of Directors.
FURTHER RESOLVED THAT the Company Secretary be and is hereby authorized to complete necessary legal
formalities to bring effect to the above.”
Other Business
5. To discuss any other matter with the permission of the Chair.
BY THE ORDER OF THE
GOVERNING BOARD OF DIRECTORS
MUHAMMAD RAFIQUE UMER
Company Secretary
Karachi:
September 16, 2011
Note: A statement under section 160(1)(b) of the Companies Ordinance, 1984, setting out all material facts
concerning the Special Business to be transacted at the Annual General Meeting, is enclosed. .
Statement under section 160(1)(b) of the Companies Ordinance, 1984
This statement sets out material facts concerning the Special Business to be transacted at the Annual General
Meeting of the Exchange, to be held on October 10, 2011 at 04:00 pm:
Agenda Item No.4
1. Karachi Stock Exchange (Guarantee) Limited [KSE] is a company limited by guarantee and is, accordingly,
subject to applicable provisions of the Companies Ordinance, 1984 [the Ordinance]. .
2. Sub-section (1) of section 180 of the Ordinance provides that an elected director shall hold office for a
period of three (03) years. In contrast, under the Articles of Association [AoA] of the Exchange, all directors
retire on December 31 of every year and hence, their term of office cannot exceed one (01) year. .
3. Moreover, the AoA of KSE also restricts the directors from holding the office for three (03) consecutive
terms, whereas, no such restriction is prescribed in the Ordinance.
Sd/-
25
4. On July 20, 2011, KSE, as well as the other two stock exchanges, received a letter from Securities and
Exchange Commission of Pakistan [SECP] also pointing towards the above inconsistency with the added
assertion that, under the AoA of other associated companies namely Central Depository Company of
Pakistan Limited, National Clearing Company of Pakistan Limited and Pakistan Mercantile Exchange
Limited, the term of directors is of 3 years. SECP was also of the view that a term of one (01) year is
inadequate and insufficient for the directors to fully comprehend the issues of capital markets and to
deliver according to their mandate of implementing concrete measures for betterment of the market and
its stakeholders. With a view to bring the provisions of AoA of the stock exchanges in line with the law
and for the sake of continuity, SECP, accordingly, suggested the stock exchanges to amend the relevant
provisions of respective AoA so as to provide for three (03) years' term for directors. .
5. The above letter was considered by the Board of Directors of the Exchange, at its meeting held on
September 08, 2011 where the Board agreed to the views and suggestions of SECP and accordingly
recommends the members to approve amendments in Article 22(d), Article 22(e), Article 22(g) and Article
28 of AoA of KSE, as per the proposed Special Resolution. A table showing comparison of existing
provisions of the AoA with the proposed amended provisions is given herein-below for ready reference
of the members:
6. Since the effective date of above-proposed amended Articles would be January 01, 2012; the present
directors do not have any personal interest in the proposed Special Resolution. .
EXISTING ARTICLES
22.(d) All the elected, appointed and co-opted Directors
including the Chairman shall retire on 31st
December every year.
22.(e) A Director who has been elected or nominated for
a consecutive period of two years shall not be
eligible for election/ nomination for a third
consecutive term.
22.(g) This Article shall take effect from 1st January 2003.
Till 31st December 2002, the Board as constituted
for the year 2002 shall continue to hold office except
that all non-elected Directors shall, for the purpose
of co-option be deemed to be appointed by the
Commission.
28. The Exchange shall in the month of December
every year in the manner hereinafter provided elect
by ballot five (5) Directors of the Board.
PROPOSED ARTICLES
22.(d) The term of the Board of Directors of the Exchange
shall be three (03) years.
22.(e) All retiring directors, whether elected, nominated
or co-opted, shall be eligible for re-election or reappointment,
as the case may be, for the
subsequent term.
22.(g) This Article shall take effect from 1st January
2012. The Board, as constituted for the calendar
year 2011, shall continue to hold office till
December 31, 2011.
28. The Exchange shall, in the manner hereinafter
provided, elect by ballot, five (5) Directors, from
amongst the members of the Exchange, for each
term of the Board of Directors.
DIRECTORS’ REPORT
27
DIRECTORS' REPORT 2010-11
The Governing Board of Directors of the Karachi Stock Exchange ("the Exchange" or "KSE") is pleased to present
the annual report and audited accounts of the Exchange for the financial year ending 30th June, 2011 (FY11).
The outgoing year was characterized by high degree of uncertainty both at the macro socio-economic level as
well as in the market environment. This resulted in continued decline in trading volume at the Exchange and
consequently on revenue generation. Given multi-year outlays already under implementation and high inflation
environment, the cost base remained high. As a result, profitability declined driven primarily by revenue
contraction.
In view of the prevailing macro-environment and market dynamics, the Board of KSE recognizes that the business
model of the Exchange needs to change significantly to ensure KSE's financial viability. This is critical in order
to enable the Exchange to fulfill its raison d'être i.e. enabling Pakistan's industry and commerce to efficiently
access long term for growth on the one hand, and providing investors with a viable asset class to deploy their
savings, on the other. In this context, the Board has instituted significant cost curtailment initiatives the positive
results of which should hopefully manifest themselves in FY11-12. At the same time, the core issue remains that
of huge fall in revenues due to crash in volumes. This externality is a result of several factors beyond the
Exchange's control, such as high interest rate environment which reduces relative attractiveness of equities as
an asset class; cumbersome methodology of CGT computation and collection; uncertain macro environment that
has increased investor risk aversion, and transference of liquidity from the documented sector to the undocumented
sector. To counter the contraction in top line, the Exchange is working on several fronts in order to diversify
sources of income via exploring development of debt-trading, additional derivatives such as Options and ETFs
and also re-launching of the OTC market as a dedicated Venture Enterprize Exchange (VEX) under KSE's
existing trading platform. Simultaneously, a comprehensive roadmap is being developed to (i) raise investor
awareness regarding stock market investing and; (ii) encourage private companies to list on the Exchange. The
objective is to both broaden the investor base as well as increase the investable universe. The Board is of the
view that only in this way, can the depth of the market and its liquidity be enhanced. .
MACRO ENVIRONMENT
The macro environment remained turbulent throughout FY10-11 and since June 2011, the U.S. political tussle
on debt ceiling and Eurozone debt crisis greatly increased global financial uncertainty. The nail in the coffin was
S&P's decision to downgrade the U.S. from AAA to AA+, for the first time in history. Global equity markets saw
melt down in August, 2011. According to Mohamed El-Erian, Managing Director of PIMCO, the largest bond fund
in the world, "this historic action (of U.S. being downgraded) has taken place and the global system must adjust….
Global financial markets reopen to a changed reality."
This changed reality will also be felt in Pakistan, the extent of which is yet to be seen. As it is, FY10-11 was a
tough year for the country's economy. The devastating floods of July/August 2010 took their toll on growth with
the economy eking out GDP growth of 2% according to official data. Even then, external commodity shock and
internal supply side constraints pushed inflation to near 14% levels. This was also due to high fiscal deficit some
of which was avoidable (wastage, low GDP/tax ratio, large subsidies) and some unavoidable (cost of flood related
rehabilitation, debt servicing & national security expenditure in a war economy). In the final quarter of fiscal 2011
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
28
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
(April to June), the Government was able to contain its borrowing from the central bank by massive cuts in
development expenditure and shift to commercial banks. Excluding the monetization of circular debt, fiscal deficit
in FY10-11 was estimated at 5.6%-5.7% of GDP.
The external sector fared relatively better with record exports driven by high cotton and rice prices as well as
record inward remittances by overseas Pakistanis. As a result, the current account recorded a surplus after a
hiatus of several years. Forex reserves crossed US$18billion mark and the Rupee/USD exchange rate remained
stable.
Looking ahead into FY11-12, both the global and domestic macroeconomic picture depicts low visibility. Globally,
fears of a double - dip recession have resurfaced for G-7 economies or at least of very slow economic growth
going ahead. Finance and monetary authorities in the U.S. and Euro zone appear to have run out of tools to
reflate their economies. As Nouriel Roubini, Professor at Stern School, NYU wrote in the Financial Times, "Until
last year, policy makers could always produce a new rabbit from their hat to trigger asset reflation and economic
recovery. Zero policy rates, QE1, QE2, fiscal stimulus… all have been tried. But now, we have run out of rabbits
to pull out of hats". It appears that the G-7 economies, that still account for 70% plus of global GDP, are moving
into an era of "stagflation" - suboptimal growth yet with above trend inflation. This is really the worst of all worlds
and signals significant economic & socio-political dislocations not just in the West as it goes through massive
deleveraging, but across the globe. This is more than a cyclical phenomenon, it is a fundamental shift and may
span decades as economic power moves from the West to the East and from the North to the South. .
In the immediate future, low G-7 growth or recession has several implications for Pakistan, some negative, some
positive. The net impact will depend on which factors dominate. For example, if global demand experiences
significant slowdown due to recession in G-7 and monetary tightening in major emerging economies, international
commodity prices should deflate, especially oil and industrial raw materials. This would be positive for energy
importing countries such as Pakistan as inflationary and current account pressures ebb. On the other hand
however, if G-7 slowdown causes significant reduction in exports, the benefit to the current account would be
lost. At the same time, it should be noted that Asia and especially China, have become increasingly important
export destination for Pakistan's exports. Thus the impact may be less than what used to happen in past economic
slow downs in the G-7.
More important perhaps is the domestic macro picture. If the government figures out a way to either contain its
expenditure in the short term or raise revenue such that FY11-12 federal budget deficit is reduced to at least 5.0-
5.5% and monetary policy remains stable with the State Bank using multiple means to encourage big banks to
lend more to the private sector, GDP growth of 3.5% or better may be achieved. While not enough to generate
high employment by any means, this would at least arrest the downward trend in economic activity seen last year.
It would also help reignite some private sector investment though not much FDI because of socio-political
uncertainty. Nevertheless, it may enable the government to enter the election year in 2013 with greater reflationary
flexibility. Foreign policy, especially relations with the U.S., is also likely to play a significant role in the financial
flexibility available to the government in FY11-12.
MARKET DYNAMICS
In the year ended June 30, 2011 the KSE-100 Index clocked in a return of 28.5% from 9722 to 12496. This made
KSE the 5th best performing equity market amongst 12 emerging Asian countries. Unfortunately, this was achieved
on sharply lower volumes with average daily volume (ADV) of 95 million shares traded in FY10-11 versus 132 million
29
shares in FY09-10. In fact, during the last quarter of FY10-11 (April-June), the ADV fell to 74 million and has
continued to fall with July 2011 showing ADV of 59 million. This indicates the primary problem confronting the
stock market - liquidity drying up.
Several causes can be indentified for the fall in trading volume but it appears that the single biggest factor is
the methodology through which the capital gains tax has been imposed. On the one hand, the computation and
reporting mechanism is cumbersome for the average individual investor. At the same time, there is apprehension
amongst retail investors regarding dealing with tax officials where the perception of governance is poor. As a
result, retail investors have chosen to exit the stock market rather than be subject to perceived involvement with
taxman. In contrast, the government, in its latest Finance Bill, has allowed individuals to invest in Government
T-Bills & PIBs directly with a simple 10% withholding tax regime. The sheer convenience factor in this fixed
income area with simplified tax settlement mechanism has loaded the dice against equities. .
Beyond the tax issue, other factors have also been at play in reducing participation in the market. The most
obvious is the high interest rate environment over last eighteen months. With government securities and national
savings schemes offering 13-14% return p.a., equities appear less attractive to investors. Furthermore, increasingly
stringent documentation, know-your-client (KYC) and reporting requirements on brokers and equity investors
are now in sharp contrast to very lax requirements for National Saving Scheme (NSS). Thus, there is a move
away from equities by retail investors.
Yet another significant development leading to low volumes in the bourses has been a huge move of income
and liquidity from the documented sectors to the undocumented sectors of the economy. By some estimates,
over the last 4 years (2007-2011), around Rs1.0 trillion has shifted from urban to rural sector due to the commodity
price hike, enhanced government financing of the agricultural sector and crop support prices. As a result, liquidity
has been drained from the documented sector to the undocumented sector. Given that urban/documented sector
is the primary investing base in the equity market, there has been a commensurate fall in liquidity and thus
volumes of the stock market. The reversal of this situation is unlikely to be immediate and will require considerable
marketing and awareness generation campaign by the capital markets industry.
In terms of market performance, top five major sectors that outperformed the broader market in FY10-11 were
Food Producers, Chemicals (Fertilizer), Industrial Engineering (Tractors), Personal Goods (Textiles) and Oil &
Gas. Of these, the top three were all beneficiaries of the agriculture commodity price boom that led to significant
rise in agri incomes & rural demand. Textiles benefitted from high cotton prices and consequent growth in export
earnings while Oil & Gas was driven by jump in international oil prices. Most poorly performing major sectors
included Financial Services, Fixed Line Telecom and Non Life Insurance, depicting the demand destruction in
urban areas primarily.
Based on the above outlook, it is instructive to note that long term investors can always find value in the stock
market.
In an internal study by KSE Research department, it was found that amongst the listed companies, there were
51 companies that paid cash dividend every single year from 2002-2010 and then were over a hundred companies
that paid cash dividend in eight out of ten years between 2000 and 2010. Using the latter dividend paying universe
(excluding Modarabas), it was found that 43 companies provided a "total return" (capital gain + bonus + cash
dividend) of 25% or more per annum in the last decade, and 25 companies that provided a return of 30% or more
per annum over the last decade. Taking a shorter timeframe of five years from 2005-2010 which implies higher
weight to the 2008-09 financial crisis, it was found that nearly 50 companies demonstrated a compounded annual
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
30
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
return of 25% during 2005-2010. This compares to an average return of 5% p.a. for the KSE-100 Index itself
from June 2005 - June 2010.
The above analysis demonstrates that profitable investment opportunities are available at the Karachi Stock
Exchange for investors who are willing to take the time and effort to conduct in depth research and who have
(a) patience for investing over the long-term and (b) risk profile that enables them to ride out-shorter term market
volatility.
At this point, KSE-100 Index companies are estimated to be trading at forward Price-to-Earnings ratio (PER) of
just over 5.0x, with forecasted forwarded earnings growth in 16-18% range and FY11-12 market dividend yield
in excess of 10%. These are fairly attractive valuations by any standard even if one takes into account heightened
domestic & global risk aversion that is likely to compress PE's for some time. In contrast, Asian Region (ex-
Japan) dividend yield is presently in this 2.5%-3.5% range, with India at around 1.5% and Malaysia at 3.2%,
while the forward PE for the region is broadly in the 12-14x range.
Outlook for global monetary conditions have changed significantly after the shock to financial markets in Aug
2011 from the earlier tightening phase by central banks, especially in major emerging markets and warnings of
tightening in G-7. The fear of a double dip recession in the G-7 economies has changed the tone of central
banks.
Given the U.S. Federal Reserve's recent pronouncement to keep interest rates low until mid 2013 and EU's focus
on buying further bonds to avert a full-blown debt crisis, global liquidity should ease fears of mass exodus of
investors from emerging markets. In fact, if a recession is avoided in G-7, it could lead to flows returning back
from Foreign Portfolio Investors to emerging markets in FY11-12.
FINANCIAL REVIEW
Operating revenue for the year ended June 30, 2011 was Rs. 303 million versus Rs. 320 million in the corresponding
period in 2010 showing a decline of 5%. Within this, revenue from operations which includes fee from trading
transactions witnessed a reduction of 28% due to reduced transaction volume. However, revenue from listing
fee rose by 25% driven by growth in additional listing fees due to rights issue.
Total operating expenses for the year were around the same level as FY10 i.e. Rs.640 million in 2011 versus
Rs. 637 million in 2010. As a result, operating loss increased by 7% in 2011. Other income, including share of
profit of associates net of tax, increased by 10% to Rs. 390 million in 2011 versus Rs. 355 million in 2010 which
was a result of income from management fee charged during the year.
Pretax profit in 2011 was Rs. 52 million versus Rs. 38 million in 2010, higher by 37%. However, after tax profit
was Rs. 50 million in 2011 versus Rs. 68 million in 2010 due to deferred tax adjustment available last year which
was absent in 2011.
The total balance sheet footing of the Exchange stood at Rs. 4.48 billion as at June 30, 2011 versus Rs. 4.62
billion on June 30, 2010. Current ratio improved to 2.7 times in 2011 versus 2.4 times in 2010 indicating comfortable
liquidity position of the Exchange.
31
CONTRIBUTION TO NATIONAL EXCHEQUER
The Capital Markets are amongst the larger contributors to the national exchequer. During the year 2010-11,
the Exchange collected taxes from the members of the Exchange on securities market transactions and paid
an aggregate amount of Rs.362 million to the government exchequer (Rs.547 million in 2009-2010). .
INVESTMENTS IN ASSOCIATE AND OTHER COMPANIES
The Karachi Stock Exchange currently holds investments in the following associate and other companies:
During the year, a cash dividend @ 30% (2010: 30%) by CDC; no dividend (2010: 50%) by NCCPL and cash
dividend @ 8% (2010: 5%) declared by JCR-VIS for the financial year ended June 30, 2010 were received. .
BOARD OF DIRECTORS
The Board of Directors of the Exchange comprises of 10 members including the Managing Director. Out of these,
5 directors are elected from amongst the members of the Exchange, whereas 4 non-member directors are
nominated and appointed by SECP. As per Articles of Association of the Exchange, the Board of Directors is
constituted for each calendar year. With a view to promote good governance, SECP introduced a 'Fit and Proper
Criteria' for persons desiring to act as directors on the boards of the stock and commodity exchanges, CDC and
NCCPL, which has been duly implemented at KSE.
The KSE Board consists of a mix of experienced and successful professionals with diverse background. The
non-member directors have a proven track record of running major institutions, while the member directors have
a deep understanding of the working of the Exchange and the local equity market.
During the year, Mr. Adnan Afridi completed his term of 3 years as Managing Director of KSE on October 31,
2010 and therefore, with effect from November 01, 2010, Mr. Haroon Askari, General Manager-Operations, was
appointed as Acting Managing Director of the Exchange to function till the appointment of regular Managing
Director.
Name of company Amount Percentage As appearing in
invested shareholding the accounts
(Rs. in million) (%) (Rs. in million)
Associates
Central Depository Company of Pakistan Limited [CDC] 39.81 39.81 642.10
National Clearing Company of Pakistan Limited [NCCPL] 30.00 47.06 175.43
Others
JCR-VIS Credit Rating Company Limited [JCR-VIS] 2.50 12.50 2.50
Pakistan Mercantile Exchange Limited [PMEX]* -
(Formerly: National Commodity Exchange Limited) 42.09 19.14 22.09
*KSE holds 3,636,356 (2010: 3,636,356) ordinary shares of Rs.10 each; representing 19.14% equity in PMEX. Break-up value
of each ordinary share of Rs.10 is Nil (2010: Nil) based on the unaudited accounts available for the year ended June 30,
2011. The original cost of investment in PMEX is Rs.42.091 million.
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
32
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
Pursuant to requirements of the Articles of Association of the Exchange, election of directors was conducted at
the Extraordinary General Meeting held on December 29, 2010 where Mr. Abid Ali Habib was re-elected while
Mr. Mohammed Sohail, Zafar S. Moti, Mr. Ashraf Bava and Mr. Muhammad Qasim Lakhani were elected for the
year 2011, to replace Mr. Abdul Majeed Adam, Mr. Dawood Jan Mohammad, Mr. Muhammad Munir Khanani
and Mr. Muhammad Yasin Lakhani.
Similarly, Mr. Muneer Kamal, Mr. Abdul Qadir Memon, Mr. Asif Qadir and Mr. Shazad G. Dada were nominated
by SECP to replace Mr. Zubyr I. Soomro, Mr. Farrukh S. Ansari, Mr. Farrukh Viqaruddin Junaidy and Mr. Muhammad
Farhan Malik. Mr. Muneer Kamal was unanimously elected by the Board as Chairman for the year 2011.
Subsequently, after a detailed and extensive process the Board of Directors of KSE selected the name of Mr.
Nadeem Naqvi as the next permanent Managing Director of KSE. In terms of the regulations and KSE's Articles
of Association, SECP granted approval to the appointment of Mr. Naqvi on April 22, 2011. Accordingly, Mr. Naqvi
assumed his charge with effect from May 02, 2011.
The Board records its appreciation of the contribution made by the outgoing Directors.
During the financial year ended June 30, 2011, 13 Board meetings (09 scheduled & 04 emergent) were held,
in which Directors' attendance was as follows:
Name of Director
July-December 2010
Mr. Zubyr I. Soomro 8 3
Mr. Adnan Afridi 4 4
Mr. Abdul Majeed Adam 8 8
Mr. Farrukh S. Ansari 8 5
Mr. Abid Ali Habib 8 8
Mr. Farrukh Viqaruddin Junaidy 8 5
Mr. Muhammad Munir Khanani 8 8
Mr. Muhammad Yasin Lakhani 8 8
Mr. Muhammad Farhan Malik 8 5
Mr. Dawood Jan Mohammad 8 8
Mr. Haroon Askari 4 2
January-June 2011
Mr. Muneer Kamal 5 5
Mr. Haroon Askari 4 4
Mr. Ashraf Bava 5 4
Mr. Shazad G. Dada 5 4
Mr. Abid Ali Habib 5 5
Mr. Muhammad Qasim Lakhani 5 5
Mr. Abdul Qadir Memon 5 5
Mr. Zafar S. Moti 5 5
Mr. Asif Qadir 5 5
Mr. Mohammed Sohail 5 5
Mr. Nadeem Naqvi 1 1
Leave of absence was granted to directors who could not attend some of the Board meetings.
Number of meetings
during the tenure within
the period
Number of meetings
attended
33
COMMITTEES
The Board has constituted the following committees, mandated with distinctive terms of reference. The Committees
comprising of members of the Board and members of the Exchange were formed for the calendar year 2011
under the current chairmanship of various directors, as given below:
AUDIT COMMITEE
The Audit Committee is constituted by the Board under the requirements of the Code of Corporate Governance
and currently comprises of five members including the Chairman:
1. Mr. Abdul Qadir Memon Chairman
2. Mr. Shazad G. Dada Member
3. Mr. Muhammad Qasim Lakhani Member
4. Mr. Asif Qadir Member
5. Mr. Mohammed Sohail Member
The Committee held five (05) meetings during the financial year 2010-11. The governing charter of the Audit
Committee addresses requirements of the Code of Corporate Governance issued by SECP and includes adoption
of international best practices in internal audit. The Committee is accountable to the Board for recommendation
relating to appointment of external auditors, directing and monitoring the audit function and reviewing the accuracy
and quality of the audit process. While the Chief Financial Officer is responsible for the accuracy of financial
information included in the financial reports, the Committee provides the Board with additional assurance.
In addition, the Committee has oversight responsibilities for the control processes and for ensuring that the
Exchange has an effective internal control framework. These controls include safeguarding of assets, maintaining
of proper accounting records, complying with legislation and ensuring the reliability of financial information. The
Committee monitors non-compliances identified through System Audits and any Special Audits of Brokerage Houses.
Committee Chairman
i. Human Resources Committee Mr. Muneer Kamal
ii. Voluntary De-listing Committee Mr. Nadeem Naqvi
iii. Advisory & Arbitration Committee Mr. Muhammad Qasim Lakhani
iv. Companies Affairs and Corporate Governance Committee Mr. Abid Ali Habib
v. Development & Trading Affairs Committee Mr. Ashraf Bava
vi. Audit Committee Mr. Abdul Qadir Memon
vii. Market Development & New Products Committee Mr. Mohammed Sohail
viii. Demutualization Committee Mr. Zafar S. Moti
ix. Default Management Committee Mr. Muneer Kamal
x. Investment Committee Mr. Mohammed Sohail
xi. Taxation Committee Mr. Abdul Qadir Memon
xii. Committee for hearing appeals of members Mr. Asif Qadir
xiii. Committee for handling cases of suspension/expulsion & imposition of fines Mr. Asif Qadir
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
34
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
The Internal Audit Department is the main resource supporting the Committee as per the Code of Corporate
Governance. The Head of Internal Audit reports to Chairman of the Committee with an administrative reporting
line to the Managing Director.
CORPORATE GOVERNANCE -
CORPORATE AND FINANCIAL REPORTING FRAMEWORK
The Board of Directors and the Company remain committed to the principles of good corporate management
practices with emphasis on transparency and disclosures. The Board and management are cognizant of their
responsibilities and monitor the capital market operations and performance to enhance the accuracy,
comprehensiveness and transparency of financial and non-financial information.
The Board is pleased to advise that KSE has voluntarily adopted the Code of Corporate Governance and has
complied, in all material respects, with the best practices contained in the said Code, as fully explained in the
attached Statement of Compliance. Further, as per the Code's requirements, the following specific statements
are being made:
Proper books of accounts of the Company have been maintained.
The financial statements prepared by the management present fairly its state of affairs, the results of its
operations and cash flows.
Appropriate accounting policies have been consistently applied in preparation of financial statements which
conform to the International Accounting Standards as applicable in Pakistan. The accounting estimates,
wherever required, are based on reasonable and prudent judgment.
The system of internal controls is sound in design. It has been effectively implemented by the management
and is monitored by the internal and external auditors as well as the Board of Directors and the Audit
Committee. The Board reviews the effectiveness of established internal controls through the Audit Committee
and suggests, wherever required, further improvement in the internal control systems. .
There are no significant doubts upon the Company's ability to continue as a going concern.
There is no reported instance of any material departure from the best practices of corporate governance.
Significant deviations from last years' operating results, future plans and changes, if any, have been separately
disclosed, as appropriate, in this report of the Directors.
Value of investment of KSE Employees' Gratuity Fund is Rs.110.94 million based on unaudited accounts
for the year June 30, 2011.
Key operating and financial data of last 6 years has been included in this annual report.
CORPORATE SOCIAL RESPONSIBILITY
Karachi Stock Exchange, being a national institution and a responsible corporate citizen, strongly realizes its
duty towards the society. In view of this, KSE has a defined policy for Corporate Social Responsibility activities.
During the year under review, the Exchange made a donation of Rs.1.2 million to Memon Medical Institute.
35
AUDITORS
Ernst & Young Ford Rhodes Sidat Hyder, Chartered Accountants, have completed their assignment and retired.
Being eligible, they have offered themselves for reappointment. Based on the recommendation of the Audit
Committee, the Board further recommends the reappointment of Ernst & Young Ford Rhodes Sidat Hyder,
Chartered Accountants, as KSE's auditors for the financial year ending on June 30, 2012. .
ACKNOWLEDGEMENT
The Board wishes to express its gratitude to KSE members and other stakeholders for their continued commitment
and support to KSE and the capital markets. The Board is also grateful to Securities and Exchange Commission
of Pakistan, Federal Board of Revenue and the Ministry of Finance, Revenue & Economic Affairs, Government
of Pakistan, for their active support and guidance to KSE at all times.
Furthermore, the Board would like to thank all Committee members for their guidance and support. The Board
acknowledges and appreciates the professional expertise, diligence and dedication of all KSE staff members
who were instrumental in achieving the desired milestones during a challenging year. .
For and on behalf of the Board of Directors
MUNEER KAMAL NADEEM NAQVI
Chairman Managing Director
Karachi
September 08, 2011
Sd/- Sd/-
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
36
DESCRIPTION 2008 2009 2010 2011
Total Listed Companies 652 651 652 639
Total Listed Capital (Rs. in million) 706,420 781,794 909,894 943,733
Total Market Capitalization (Rs. in million) 3,777,705 2,120,651 2,732,374 3,288,657
New Companies Listed 7 8 8 1
Listed Capital of New Companies
(Rs. in million) 14,274 10,705 40,653 4,350
New Debt Instruments Listed 7 1 5 2
Listed Capital of New Debt Instruments
(Rs. in million) 23,500 4,257 8,650 5,000
Total Shares Volume (million) 63,316 28,333 42,959 28,018
Average Daily Share Volume (million) 256 116 173 112
KSE INDICES
KSE - 100 Index
Year End 12289.03 7162.18 9721.91 12496.03
High 15676.34 12221.43 10677.47 12681.94
Low 11162.17 4815.34 7270.72 9516.42
KSE - All Share Index
Year End 8834.24 5121.73 6809.60 8663.10
High 11148.68 8791.08 7522.88 8794.69
Low 8038.39 3647.10 5194.43 6652.45
KSE - 30 Index
Year End 14326.27 7571.08 9556.58 11586.49
High 18996.33 14230.42 10876.61 12476.12
Low 12750.28 4428.10 7711.91 9372.08
KMI - 30 Index
Year End 10647.69 14573.54 20936.20
High 11421.34 16079.33 21344.19
Low 6322.23 10871.59 14421.31
NOTES:
(i) The figures are from July to June.
(ii) The total number of listed companies have been stated after 5 companies De-listed in 2008, 6 companies in 2009, 3 companies in 2010 and 11
companies in 2011 and 8 companies Merged in 2008, 3 companies in 2009, 4 companies in 2010 and 3 companies in 2011.
(iii) The total listed capital has been stated after adjustment of capital of companies by way of merger, bifurcation andde-listing, etc.
(iv) The KSE 100 Index was started in November 1991 with a base of 1000 points and. It is recomposed semi-annually and was last re-composed
on February 28, 2011 closing statistics.
(v) The KSE All Share Index based on the prices of August 29, 1995 = 1000, commenced w.e.f. September 18, 1995.
(vi) The KSE - 30 Index based on the prices of June 30, 2005 = 10000, introduced w.e.f. September 01, 2006.
(vii) The KMI - 30 Index introduced w.e.f. September 01, 2008.
MARKET HIGHLIGHTS
37
KSE HISTORIC RECORDS
Records Date Closing Net Highest Total Market
Index Change Turnover Paidup Capitalization
(Shares mn) Capital
Rs. in million
Maximum Increase in KSE-100 Index 24-06-2008 12123 960 - 706,220 3,730,726
Maximum Decrease in KSE-100 Index 31-12-2007 14076 (696) - 671,256 4,329,910
Highest KSE-100 Index 18-04-2008 15676 - - 692,368 4,790,985
Lowest KSE-100 Index 14-07-1998 766 - - 211,313 234,146
Highest Turnover (T+3) 16-04-2004 5582 - 1,122 364,601 1,489,459
13,077
12,521
14,014
16,993
16,183
16,717
18,438
14,326
10,064
5,485
7,379
7,571
10,031
9,849
10,425
9,556
9,674
11,588
11,561
11,586
4000
6000
8000
10000
12000
14000
16000
18000
20000
KSE 30 INDEX 2006 TO 2011
1366
1770
3402
5279
7450
9989
13772
12289
7162
9721
12496
0
2000
4000
6000
8000
10000
12000
14000
16000
30-Jun-01 30-Jun-02 30-Jun-03 30-Jun-04 30-Jun-05 30-Jun-06 30-Jun-07 30-Jun-08 30-Jun-09 30-Jun-10 30-Jun-11
KSE 100 INDEX 2001 TO 2011
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
38
KMI 30 INDEX 2008 TO 2011
11224
6703
9572 10647
13648 13754
15429
14573
15682
19071
20936 20063
Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11
5000
7000
9000
11000
13000
15000
17000
19000
21000
STATISTICS (Since July 2010 to June 2011)
LISTING OF NEW COMPANIES - EQUITY
Subscription Received
Name of Company Date of Paidup Premium Premium
Listing Capital
International Steels Limited * 01-06-2011 4,350 275 112 286 116
(Offer for Sale @ Rs.4.06
premium per share)
TOTAL 4,350 275 112 286 116
*Book Building Portion of the offer comprised of 61,875,500 Ordinary Shares (56.25% of the total offer) at a floor price
of PKR 12.90 per share
Capital Offered to
LISTING OF NEW DEBT INSTRUMENTS
Subscription Received
Name of Company Date of General Others Total General Others Total Amount
Listing Public Issue Public Issue Listed
Engro Fertilizer Limited
(Commercial Papers) 18-01-2011 - 1,000 1,000 - 1.000 1,000 1,000
Engro Corporation Limited* 14-02-2011 2,000 - 2,000 4,000 - 4,000 4,000
TOTAL 2,000 1,000 3,000 4,000 1,000 5,000 5,000
*The Company has exercised the Green Shoe Option of Rs. 2,000 million.
Amount Offered
(Rs. in million)
(Rs. in million)
General
Public/Employees
General
Public/Employees
39
APPLIED FOR LISTING
Sr. # Name of Company
1 Engro Fertilizer Limited (PPTFC - 4)
2 Engro Fertilizer Limited (PPTFC - 5)
3 Karachi Electric Supply Company Limited (TFC - 1)
4 Karachi Electric Supply Company Limited (TFC - 2)
5 Karachi Electric Supply Company Limited (TFC - 3)
PROSPECTUS CLEARED BY THE EXCHANGE
Sr. # Name of Company
1 TPL Direct Insurance Limited
2 Engro Foods Limited
3 Summit Bank Limited (TFC)
4 Engro Corporation Limited (TFC 2nd Issue)
5 Pakgen Power Limited
6 Sadaqat Limited
DELISTING OF COMPANIES / SECURITIES
Sr. # Name of Company Date of De-listing Paid up Capital
1 JS Large Cap. Fund September 16, 2010 3,295
2 Ghulam Muhammad Dadabhoy Limited October 18, 2010 50
3 Frontier Sugar Mills & Distillery Limited October 25, 2010 14
4 Tawakkal Polyester Industries Limited November 01, 2010 100
5 Amazai Textile Mills Limited November 01, 2010 42
6 Pakistan Strategic Allocation Fund November 08, 2010 3,000
7 Pakistan Premier Fund Limited December 22, 2010 1,698
8 Itti Textile Mills Limited January 06, 2011 66
9 Hala Spinning Mills Limited January 06, 2011 99
10 First Interfund Modaraba January 24, 2011 78
11 Universal Oil & Vegetable Ghee Mills Limited March 10, 2011 9
(Rs. in million)
DELISTING OF COMPANIES DUE TO MERGER/AMALGAMATION
Sr. # Name of Company Merged With Date of Merger
1 Shaheen Cotton Mills Limited Shahzad Textile Mills Limited August 02, 2010
2 The Royal Bank of Scotland Limited Faysal Bank Limited January 03, 2011
3 Atlas Bank Limited Summit Bank Limited January 11, 2011
LISTING OF OPEN-END MUTUAL FUND
Sr. # Name of Company Date of Listing Seed Capital
1 Faysal Islamic Savings Growth Fund 28-07-2010 100
2 ABL Cash Fund 06-08-2010 100
3 ABL Islamic Cash Fund 06-08-2010 100
4 AH Dow Jones Safe Pakistan Titans 15 Index Fund 03-11-2010 100
5 Pakistan Strategic Allocation Fund* 03-01-2011 1,124
6 Faysal Money Market Fund 11-02-2011 100
*Pursuant to conversion of Close-end Mutual Fund into an Open-end Mutual Fund.
(Rs. in million)
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
40
AVERAGE DAILY TURNOVER OF SHARES READY MARKET
2008 2009 2010 2011
JULY 352 88 171 76
AUGUST 204 108 160 61
SEPTEMBER 210 26 268 69
OCTOBER 346 16 222 129
NOVEMBER 248 7 133 132
DECEMBER 274 50 129 157
JANUARY 245 165 195 187
FEBRUARY 267 169 173 111
MARCH 252 190 168 110
APRIL 290 295 210 87
MAY 235 136 108 95
JUNE 161 122 135 131
TOTAL 3,084 1,374 2,072 1,344
0
50
100
150
200
250
300
350
400
JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN
2008 2009 2010 2011
(in million)
0
10000
20000
30000
40000
50000
60000
70000
Listed capital of new
companies
Listed capital of new
Debt Instruments
Bonus issues Right issues Additional issues /
Adjustments
2008 2009 2010 2011
BREAK-UP OF LISTED CAPITAL
2008 2009 2010 2011
Listed capital of new companies 14,274 10,705 40,653 4,350
Listed capital of new Debt Instruments 23,500 4,257 8,650 5,000
Bonus issues 24,808 26,744 16,457 24,122
Right issues 25,110 29,987 62,528 21,689
Additional issues / Adjustments 22,372 4,435 6,789 6,123
110,064 76,129 135,078 61,284
(Rs. in million)
41
AVERAGE DAILY TURNOVER OF SHARES (FUTURES COUNTER)
2008 2009 2010 2011
JULY 67 13 0 3
AUGUST 57 17 2 2
SEPTEMBER 48 2 2 2
OCTOBER 71 0 3 3
NOVEMBER 53 0 3 4
DECEMBER 38 0 3 5
JANUARY 43 0 7 8
FEBRUARY 46 0 5 6
MARCH 68 0 7 7
APRIL 75 0 9 4
MAY 54 0 5 4
JUNE 45 0 6 4
TOTAL 664 32 51 54
(in million)
0
20
40
60
80
JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN
2008 2009 2010 2011
2010 2011
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN
TRADES ON KARACHI AUTOMATED TRADING SYSTEM (KATS)
Month No. of Trades Daily Average No. of Trades Daily Average
July 2,237,258 97,272 1,028,212 46,737
August 1,978,453 98,923 851,805 38,718
September 2,386,091 125,584 743,816 37,191
October 2,678,017 121,728 1,155,901 55,043
November 1,572,975 87,388 1,204,769 66,932
December 1,581,432 75,306 1,456,452 69,355
January 1,952,121 97,606 1,716,495 81,738
February 1,589,155 83,640 1,039,367 54,704
March 1,793,777 81,535 1,300,058 59,094
April 1,857,400 84,427 983,384 46,828
May 1,263,801 60,181 956,835 43,493
June 58,547 2,661 1,000,881 45,495
TOTAL 20,949,027 13,437,975
Average Daily 84,688 53,777
(Rs. in million)
2010 2011
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
42
Rs. in billion
Sector Name No. of Companies Paid up Capital
Banks 24 298.28
Electricity 15 111.08
Chemicals 36 88.49
Construction and Materials 37 77.02
Fixed Line Telecommunication 5 68.86
Oil & Gas 12 67.30
Personal Goods 209 54.98
Financial Services 42 30.56
Equity Investment Instruments 51 28.80
Travel and Leisure 4 26.60
Gas Water and Multiutilities 2 13.88
Non Life Insurance 34 13.54
Food Producers 60 13.09
Industrial Metals and Mining 8 8.46
Automobile and Parts 19 7.18
Household Goods 15 4.51
Pharma and Bio Tech 9 4.27
Support Services 1 3.85
General Industrials 13 3.53
Industrial Transportation 4 3.24
Tobacco 3 3.18
Real Estate Investment and Services 2 2.81
Life Insurance 4 2.48
Media 3 2.34
Industrial Engineering 11 1.63
Forestry and Paper 4 1.20
Software and Computer Services 1 0.78
Health Care Equipment and Services 2 0.58
Beverages 4 0.54
Electronic and Electrical Equipment 3 0.37
Technology Harwdware and Equipment 1 0.21
Leisure Goods 1 0.07
TOTAL 639 943.73
SECTOR-WISE CAPITAL LISTED ON THE EXCHANGE - 2011
43
MAJOR WORLD INDICES PERFORMANCE
Date 30-Jun-10 30-Jun-11 Points Chg. % Chg.
Sri Lanka (CSE) 4,612 6,826 2,213 48.0%
Indonesia (JKSE) 2,914 3,889 975 33.5%
Thailand (SET) 797 1,041 244 30.6%
Pakistan 9,722 12,496 2,774 28.5%
Philippines (PSEi) 3,373 4,291 919 27.2%
Malaysia (KLSE) 1,314 1,579 265 20.2%
China (SSEC) 2,398 2,762 364 15.2%
Hong Kong 20,129 22,398 2,269 11.3%
Singapore 2,836 3,120 285 10.0%
India (SENSEX) 17,701 18,846 1,145 6.5%
Vietnam 507 433 (75) -14.7%
NASDAQ Composite 2,109 2,774 664 31.5%
S&P 500 Index 1,031 1,321 290 28.1%
FTSE 100 (U.K) 4,917 5,946 1,029 20.9%
NIKKEI 225 JAPAN 9,383 9,816 433 4.6%
Historical Asset Class Returns in Pakistan
KSE Gold DSC PIBs T-bills Deposits*
2000 7% -2% 15% 14% 9% 7%
2001 -16% 8% 15.0% 13% 11% 6%
2002 112% 9% 13% 10% 6% 4%
2003 66% 9% 9% 6% 2% 2%
2004 39% 15% 8% 7% 2% 1%
2005 54% 12% 8% 8% 7% 3%
2006 5% 26% 10% 10% 8% 3%
2007 40% 22% 10% 10% 7% 4%
2008 -58% 32% 11% 13% 11% 6%
2009 60% 33% 12% 13% 13% 6%
2010 28% 30% 12% 13% 13% 6%
Average 33% 20% 11% 10% 8% 4%
* Weighted average deposits rate as per SBP data. Return on 1yr fixed deposits would be marginally higher.
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
44
Name of Sector Number of Companies that Dividend Profit Making Profit Loss
Companies Announced Paying Companies that Making Making
Annual Results Companies Omitted Dividend Companies Companies
Oil & Gas 12 12 8 2 10 2
Chemicals 36 32 15 5 20 12
Forestry and Paper 4 3 2 1 3 -
Industrial Metals and Mining 7 5 3 1 4 1
Construction and Materials 37 32 2 6 8 24
General Industries 13 10 6 - 6 4
Electronic and Electrical Equipment 3 3 1 - 1 2
Industrial Engineering 11 10 5 3 8 2
Industrial Transportation 4 2 2 - 2 -
Support Services 1 1 - - - 1
Automobile and Parts 19 16 9 4 13 3
Beverages 4 3 2 - 2 1
Food Producers 61 50 29 8 37 13
Household Goods 15 9 4 3 7 2
Leisure Goods 1 1 1 - - 1
Personal Goods 211 162 73 44 117 45
Tobacco 3 3 2 1 3 -
Health Care Equipment and Services 2 1 1 - 1 -
Pharma and Bio Tech 9 9 7 2 9 -
Media 3 3 1 - 1 2
Travel and Leisure 4 4 - 3 3 1
Fixed Line Telecommunication 5 5 3 - 3 2
Electricity 15 14 5 3 8 6
Gas Water and Multiutilities 2 2 2 - 2 -
Banks 27 24 11 5 16 8
Non Life Insurance 34 24 16 2 18 6
Life Insurance 4 4 2 1 3 1
Real Estate Investment and Services 2 2 1 1 2 -
Financial Services 41 30 7 7 14 16
Equity Investment Instruments 52 41 31 3 34 7
Software and Computer Services 1 1 1 - 1 -
Technology Hardware and Equipment 1 1 - - - 1
TOTAL 644 519 252 104 356 163
PERCENTAGE 80.59% 39.13% 16.15% 55.28% 25.31%
2009
TOTAL 651 529 188 83 273 256
PERCENTAGE 81.26% 28.88% 12.75% 41.94% 39.32%
Notes:
1 Based on the financial results of the companies up to December 31, 2010.
2 Companies omitted dividends are those companies, which have shown profit during the year but not declared dividend.
3 Dividend includes Cash / Stock Dividend.
SECTOR WISE PERFORMANCE OF COMPANIES LISTED ON THE EXCHANGE - 2010
A prime element in risk creation is a
belief that risk is low. The recent
crisis came about primarily because
investors partook of novel, complex
and dangerous things. They took on
too much leverage and committed
too much capital to illiquid
investments
45
“TOUCHSTONES,” November 10, 2009
-Howard Marks
The Most Important Thing
Columbia Business School Publishing
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
46
FINANCIAL HIGHLIGHTS (Six years at a glance)
(Rs. million) 2011 2010 2009 2008 2007 2006
BALANCE SHEET
Reserves 3,103 3,052 2,984 2,739 2,071 1,565
Long Term Liabilities 239 247 261 269 612 520
Current Liabilities 1,136 1,320 621 5,994 9,353 2,764
Total Liabilities 4,479 4,619 3,867 9,002 12,036 4,849
Fixed Assets 464 522 466 272 218 248
Other Long term Assets 893 887 870 823 649 508
Current Assets 3,122 3,210 2,531 7,908 11,169 4,093
Total Assets 4,479 4,619 3,867 9,002 12,036 4,849
OPERATIONAL RESULTS
Total Income 692 675 914 1,716 1,192 1,182
Total Expenses 640 637 535 715 506 313
Profit Before Tax 53 38 379 1,000 685 869
Profit after Tax 50 68 314 772 508 603
RATIOS
Current Ratio 2.75 2.43 4.08 1.32 1.19 1.48
Quick Ratio 2.37 2.21 3.26 1.29 1.17 1.44
Net Profit Margin 7% 10% 34% 45% 43% 51%
Expenses as a percentage of revenue 92% 94% 59% 42% 42% 26%
Profit before tax as a percentage of revenue 8% 6% 41% 58% 58% 74%
47
REVIEW REPORT TO THE MEMBERS ON THE
STATEMENT OF COMPLIANCE WITH THE BEST
PRACTICES OF THE CODE OF CORPORATE
GOVERNANCE
We have reviewed the Statement of compliance with the best practices contained in the Code of Corporate
Governance (the Code) prepared by the Board of Directors of The Karachi Stock Exchange (Guarantee) Limited
(the Company) to comply with the said Code.
The responsibility for compliance with the Code is that of the Board of Directors of the Company. Our responsibility
is to review, to the extent where such compliance can be objectively verified, whether the Statement of Compliance
reflects the status of the Company's compliance with the provisions of the Code and report if it does not. A review
is limited primarily to inquiries of the Company personnel and review of various documents prepared by the
Company to comply with the Code.
As part of our audit of financial statements, we are required to obtain an understanding of accounting and internal
control systems sufficient to plan the audit and develop an effective audit approach. We have not carried out
any special review of the internal control system to enable us to express an opinion as to whether the Board's
statement on internal control covers all controls and effectiveness of such internal controls. .
Further, the Code requires the Company to place before the Board of Directors for their consideration and
approval related party transactions distinguishing between transactions carried out on terms equivalent to those
that prevail in arm's length transactions and transactions which are not executed at arm's length price recording
proper justification for using such alternate pricing mechanism. Further, all such transactions are also required
to be separately placed before the Audit Committee. We are only required and have ensured compliance of
requirement to the extent of approval of related party transactions by the Board of Directors and placement of
such transactions before the audit committee. We have not carried out any procedures to determine whether
the related party transactions were undertaken at arm's length price or not.
Based on our review, nothing has come to our attention which causes us to believe that the Statement of
Compliance does not appropriately reflect the Company's compliance, in all material respects, with the best
practices contained in the Code, for the year ended 30th June, 2011.
Sd/-
Ernst & Young Ford Rhodes Sidat Hyder
Chartered Accountants
September 08, 2011
Karachi
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
48
STATEMENT OF COMPLIANCE WITH THE
CODE OF CORPORATE GOVERNANCE
FOR THE YEAR ENDED JUNE 30, 2011
This statement is being presented in compliance with the Code of Corporate Governance as contained in
Regulation No.35 (xiv) of Listing Regulations of the Karachi Stock Exchange (Guarantee) Limited for the purpose
of establishing a framework of good governance, whereby a listed company is managed in compliance with the
best practices of corporate governance. Karachi Stock Exchange ["the Company"], although not a listed company,
has voluntarily adopted the best practices of corporate governance.
The Company has applied the principles contained in the Code in the following manner:
1. The Company encourages representation of independent non-executive directors on its Board of Directors.
At present, the Board includes all non-executive directors other than the Managing Director. .
2. The directors have confirmed that none of them is serving as a director in more than ten listed companies,
besides this Company.
3. All the directors of the Company are registered as taxpayers and none of them has defaulted in payment
of any loan to a banking company, a DFI or an NBFI. None of the directors, who is a member of a stock
exchange, has been declared as a defaulter by that stock exchange.
4. All casual vacancies that occurred in the Board during the year were immediately filled up by the Board in
accordance with the Articles of Association of the Company.
5. The Company has adopted a 'Statement of Ethics and Business Practices', which has been signed by all
the directors of the Company. Similarly, the Company has also developed a 'Statement of Code of Conduct
and Business Practices' which has been signed by all the employees of the Company. .
6. The Board has adopted a vision and a mission statement, overall corporate strategy and significant policies
of the Company. A complete record of particulars of significant policies along with the dates on which they
were approved or amended has been maintained.
7. All the powers of the Board have been duly exercised and the Board has taken decisions on material
transactions, including appointment and determination of remuneration and terms and conditions of
employment of the Managing Director.
8. The meetings of the Board were presided over by the Chairman and, in his absence, by a director elected
by the Board for this purpose. The Board met at least once in every quarter with the total number of meetings
held during the year ended June 30, 2011 being 13. Written notices of the Board meetings, along with
agenda and working papers, were circulated before the meetings. The minutes of the meetings were
appropriately recorded and circulated within the prescribed time limit, as per the Code, with a few exceptions.
The meetings, where finance-related matters were discussed, were attended by the Chief Financial Officer.
9. The management of the Company has circulated a presentation to the Board, to apprise members of their
duties and responsibilities.
49
10. All transactions with the related parties were placed before the Audit Committee and were approved by the
Board of Directors of the Company. Further, all transactions with the related parties were carried out on an
arm's length basis.
11. The Board approves the appointment of Chief Financial Officer, Company Secretary and Head of Internal
Audit, including their remuneration and terms and conditions of employment, as determined by the Managing
Director.
12. The Directors' Report for this year has been prepared in compliance with the requirements of the Code and
fully describes the salient matters required to be disclosed.
13. The financial statements of the Company were duly endorsed by the Managing Director and Chief Financial
Officer before approval of the Board.
14. The Company has complied with all the corporate and financial reporting requirements.
15. The Board has formed an Audit Committee. It comprises of five (5) members, all of whom are non-executive
directors, including the Chairman of the Committee.
16. The meetings of the Audit Committee were held at least once in every quarter prior to approval of interim
and annual financial results of the Company and as required by the Code. The total number of meetings held
during the year ended June 30, 2011 was 05. The terms of reference of the Committee have been formed
and advised to the Committee for compliance.
17. The Board has set-up an effective internal audit function through a combination of internal and outsourced
expertise. Members of the internal audit function are conversant with the policies and procedures of the
Company and are considered suitably qualified and experienced for the purpose. They are involved in the
function on a full time basis.
18. The statutory auditors of the Company have confirmed that they have been given a satisfactory rating under
the Quality Control Review Program of the Institute of Chartered Accountants of Pakistan and that the firm
and all its partners are in compliance with International Federation of Accountants (IFAC) guidelines on code
of ethics as adopted by Institute of Chartered Accountants of Pakistan. .
19. The statutory auditors or the persons associated with them have not been appointed to provide other services
except in accordance with the Listing Regulations and the auditors have confirmed that they have observed
IFAC guidelines in this regard.
20. We confirm that all other material principles contained in the Code have been complied with.
On behalf of the Board of Directors
MUNEER KAMAL NADEEM NAQVI
Chairman Managing Director
Karachi
September 08, 2011
Sd/- Sd/-
FINANCIAL STATEMENTS
51
AUDITORS' REPORT TO THE MEMBERS
We have audited the annexed balance sheet of The Karachi Stock Exchange (Guarantee) Limited (the Company)
as at 30 June 2011 and the related income and expenditure account, statement of comprehensive income, cash
flow statement and statement of changes in funds and reserves together with the notes forming part thereof for
the year then ended and we state that we have obtained all the information and explanations which, to the best of
our knowledge and belief, were necessary for the purposes of our audit.
It is the responsibility of the Company's management to establish and maintain a system of internal control, and
prepare and present the above said statements in conformity with the approved accounting standards and the
requirements of the Companies Ordinance, 1984. Our responsibility is to express an opinion on these statements
based on our audit.
We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards
require that we plan and perform the audit to obtain reasonable assurance about whether the above said statements
are free of any material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the above said statements. An audit also includes assessing the accounting policies and significant
estimates made by management, as well as, evaluating the overall presentation of the above said statements. We
believe that our audit provides a reasonable basis for our opinion and, after due verification, we report that:
(a) in our opinion, proper books of account have been kept by the Company as required by the Companies
Ordinance, 1984;
(b) in our opinion:
(i) the balance sheet and income and expenditure account together with the notes thereon have been drawn
up in conformity with the Companies Ordinance, 1984, and are in agreement with the books of account
and are further in accordance with accounting policies consistently applied except for the changes as
stated in note 4.1 to the financial statements with which we concur;
(ii) the expenditure incurred during the year was for the purpose of the Company's business; and
(iii) the business conducted, investments made and the expenditure incurred during the year were in accordance
with the objects of the Company;
(c) in our opinion and to the best of our information and according to the explanations given to us, the balance
sheet, income and expenditure account, statement of comprehensive income, statement of changes in funds
and reserves and cash flow statement together with the notes forming part thereof conform with approved
accounting standards as applicable in Pakistan, and, give the information required by the Companies Ordinance,
1984, in the manner so required and respectively give a true and fair view of the state of the Company's affairs
as at 30 June 2011 and of the income, its comprehensive income, its cash flows and its changes in funds and
reserves for the year then ended; and
(d) in our opinion, no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980).
Without qualifying our opinion, we draw attention to the contents of note 26 to the accompanying financial statements
in respect of Contingencies. The ultimate outcome of the matters referred therein cannot presently be determined
with certainty and, hence, no provision for any liability that may arise from such matters has been made in the
financial statements.
Karachi
September 08, 2011
Ernst & Young Ford Rhodes Sidat Hyder
Chartered Accountants
Audit Engagement Partner: Arslan Khalid
Sd/-
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
52
BALANCE SHEET AS AT JUNE 30, 2011
Chairman Managing Director
ASSETS
NON-CURRENT ASSETS
Property and equipment 7 308,619 415,092
Intangible assets 8 148,117 99,583
Investment property 9 6,793 7,150
Investment in associates 10 817,528 804,255
Long term investments 11 24,591 24,591
Long term deposits 12 37,160 37,139
Long term loans 13 13,810 20,709
1,356,618 1,408,519
CURRENT ASSETS
Trade Debts 14 72,914 17,035
Loans and advances 15 14,085 12,804
Prepayments 16 10,544 9,792
Other receivables 17 61,048 35,969
Short term investments 18 1,352,258 1,570,678
Taxation - net 264,884 222,609
Cash and bank balances 19 1,346,417 1,341,195
3,122,150 3,210,082
TOTAL ASSETS 4,478,768 4,618,601
FUNDS, RESERVES AND LIABILITIES
FUNDS
General Entrance Fee Fund 140,295 140,295
Dara F. Dastoor Scholarship Fund 20 2,229 2,231
142,524 142,526
RESERVES 3,102,988 3,051,670
3,245,512 3,194,196
NON-CURRENT LIABILITIES
Deferred liability - Agent Welfare Fund 1,091 976
Deferred tax liability 21 - 6,233
Long term deposits 22 95,723 97,473
96,814 104,682
CURRENT LIABILITIES
Provision for wealth tax 23 1,684 1,684
Deposits from members against exposures and losses 24 820,853 936,301
Trade and other payables 25 313,905 381,738
1,136,442 1,319,723
CONTINGENCIES AND COMMITMENTS 26
TOTAL FUNDS, RESERVES AND LIABILITIES 4,478,768 4,618,601
The annexed notes from 1 to 39 form an integral part of these financial statements.
2011 2010
(Rupees in '000)
Sd/- Sd/-
Note
53
INCOME AND EXPENDITURE ACCOUNT
FOR THE YEAR ENDED JUNE 30, 2011
Note
INCOME
Income from listing 27 171,311 137,244
Income from operations 28 131,191 182,889
302,502 320,133
EXPENDITURE
Administrative expenses 29 (616,378) (614,902)
Financial and other charges 30 (23,377) (21,701)
(639,755) (636,603)
(337,253) (316,470)
OTHER OPERATING INCOME
Management fee 31 15,036 (55,622)
Mark-up / interest income 32 251,194 283,201
Other income 33 52,371 60,268
318,601 287,847
SHARE OF PROFIT OF ASSOCIATES 10.1 71,319 66,953
INCOME BEFORE TAXATION 52,667 38,330
Taxation 34 (3,015) 29,764
NET INCOME FOR THE YEAR 49,652 68,094
The annexed notes from 1 to 39 form an integral part of these financial statements.
2011 2010
(Rupees in '000)
Chairman Managing Director
Sd/- Sd/-
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
54
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED JUNE 30, 2011
Net income for the year 49,652 68,094
Other Comprehensive income/(loss)
Share of other comprehensive income of associates in respect of
surplus / (deficit) on revaluation of available for sale investments 1,666 (765)
Total Comprehensive income for the year 51,318 67,329
The annexed notes from 1 to 39 form an integral part of these financial statements.
Chairman Managing Director
2011 2010
(Rupees in '000)
Sd/- Sd/-
55
CASH FLOW STATEMENT
FOR THE YEAR ENDED JUNE 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Income before taxation 52,667 38,330
Non-cash adjustments to reconcile income
before tax to net cash flows
Depreciation
- Operating fixed assets 89,615 73,212
- Investment property 357 371
Amortisation of intangible assets 52,924 36,161
Provision for gratuity 16,346 14,390
Dividend income (200) (125)
Mark-up / interest income (251,194) (283,201)
Reversal of provision against receivables on recovery - (310)
Unrealised gain on revaluation of investments - (10,744)
Investment written off - 1,000
Provision against financial assistance to members - 2,963
Provision for trade debts considered doubtful 2,086 -
Provision against other receivables 641
Share of profit of associates (71,319) (66,953)
Loss / (gain) on disposal of fixed assets 2 (4,543)
(160,742) (237,779)
(108,075) (199,449)
Working capital adjustments:
(Increase) / Decrease in current assets
Trade Debts (57,965) 12,734
Loans and advances (1,281) 245,579
Prepayments (752) 2,070
Other receivables (20,155) 6,460
(80,153) 266,843
Increase / (Decrease) in current liabilities
Deposits from members against exposures and losses (115,448) 536,377
Trade and other payables (84,179) 147,945
(387,855) 751,716
Income tax paid (51,523) (91,735)
Increase in deferred liability 115 68
(Decrease) / Increase in long term deposits (1,750) 6,485
Mark-up / interest received 252,300 287,784
199,142 202,602
Net cash flows (used in) / generated from operating activities (188,713) 954,318
2011 2010
(Rupees in '000)
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
56
Balance b/f. (188,713) 954,318
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditure (56,068) (100,997)
Capital work-in-progress (29,698) (65,766)
Proceeds from sale of fixed assets 1,164 6,062
Investments purchased (1,493,075) (1,559,934)
Investments sold 1,704,824 1,178,055
Dividend received 59,912 74,837
Decrease in long term loans 6,899 7,433
Increase in long term deposits (21) (17)
Net cash flows generated from/(used in) investing activities 193,937 (460,327)
5,224 493,991
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in Dara F. Dastoor Scholarship Fund (2) (7)
Net cash flows used in financing activities (2) (7)
Net increase in cash and cash equivalents 5,222 493,984
Cash and cash equivalents at the beginning of the year 1,341,195 847,211
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 1,346,417 1,341,195
The annexed notes from 1 to 39 form an integral part of these financial statements.
Chairman Managing Director
2011 2010
(Rupees in '000)
Sd/- Sd/-
57
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
58
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
1. THE COMPANY AND ITS OPERATIONS
1.1 The Karachi Stock Exchange (Guarantee) Limited (the Company) was incorporated under the Companies
Act, 1913 (now Companies Ordinance, 1984) on March 10, 1949 as a Company Limited by Guarantee.
The Company is engaged in conducting, regulating and controlling the trade or business of buying,
selling and dealing in shares, scripts, participation term certificates, modaraba certificates, stocks,
bonds, debentures stock, government papers, loans, and any other instruments and securities of like
nature including, but not limited to, special national fund bonds, bearer national fund bonds, foreign
exchange bearer certificates and documents of similar nature, issued by the Government of Pakistan
or any other agency authorised by the Government of Pakistan.
The registered office of the Company is situated at Stock Exchange Building, Stock Exchange Road,
Karachi.
1.2 Pursuant to the powers conferred on the Securities and Exchange Commission of Pakistan (SECP)
through the Securities and Exchange Ordinance, 1969, the SECP has compiled a draft of the Stock
Exchanges (Corporatisation, Demutualisation and Integration) Bill, 2009 which was approved by the
National Assembly of Pakistan in its session held on October 08, 2009. The Bill has now been referred
to the Mediation Committee of the Parliament. The Company has remained actively engaged with the
Government and SECP to facilitate this process and looks forward to early promulgation of the Act so
that the entire process can be completed in an efficient and judicious manner.
The said Act will ensure that the Company is demutualized and converted into a limited liability company
according to the requirements of the law.
2. STATEMENT OF COMPLIANCE
These financial statements have been prepared in accordance with approved accounting standards as
applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting
Standards (IFRS) issued by the International Accounting Standards Board (IASB) as are notified under the
Companies Ordinance, 1984, and provisions of and directives issued under the Companies Ordinance,
1984. In case requirements differ, the provisions or directives of the Companies Ordinance, 1984 shall
prevail.
3. BASIS OF MEASUREMENT
3.1 These financial statements have been prepared under the historical cost convention except for investments
which are valued as stated in notes 4.6 below.
3.2 These financial statements are presented in Pakistani Rupees which is the Company's functional and
presentation currency.
59
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
4.1 The accounting policies adopted in the preparation of these financial statements are consistent with
those of the previous financial year except as described below:
New and amended standards and interpretations
The Company has adopted the following new and amended IFRS and IFRIC interpretations which
became effective during the year:
IFRS 2 – Share Based Payment – Group Cash-settled Share based Payment Arrangements
(Amendment)
IAS 32 - Financial Instruments: Presentation - Classification of Rights Issues (Amendment)
IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments
Issued in 2009
IFRS 5 - Non-Current Assets Held for Sale and Discontinued Operations
IFRS 8 - Operating Segments
IAS 1 - Presentation of Financial Statements
IAS 7 - Statement of Cash flows Presentation of Financial Statements
IAS 17 - Leases
IAS 36 - Impairment of Assets
IAS 39 - Financial Instruments : Recognition and Measurement
Issued in April 2010
IFRS 3 - Business Combinations
IAS 27 - Consolidated and Separate Financial Statements
The adoption of the above standards, amendments / improvements and interpretations did not have
any effect on the financial statements.
4.2 Operating fixed assets
These are stated at cost less accumulated depreciation / amortisation and impairment, if any.
Depreciation is charged to income applying the diminishing balance method over its estimated useful
life, except for "Computers and related accessories" which are depreciated using straight-line method,
after taking into account residual value. The cost of leasehold land is amortised over its lease term.
The assets’ residual values, useful lives and methods are reviewed, and adjusted if appropriate, at
each financial year end.
In respect of additions and disposals of assets, depreciation is charged from the month in which
asset is available to use and continue depreciating it until it is derecognized i.e. up to the month
preceding the disposal, even if during that period the asset is idle.
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
60
Useful lives are determined by the management based on expected usage of asset, expected
physical wear and tear, technical and commercial obsolescence, legal and similar limits on the use
of assets and other similar factors.
Maintenance and repairs are charged to income as and when incurred. Major renewals and
improvements are capitalised and the assets so replaced, if any, are retired. Gains and losses on
disposal of assets, if any, are included in income currently.
An item of property, plant and equipment is derecognized upon disposal or when no future economic
benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset
(calculated as the difference between the net disposal proceeds and the carrying amount of the
asset) is included in the income statement in the year the asset is derecognized.
4.3 Capital work-in-progress
Capital work-in-progress is stated at cost. It consists of expenditure incurred and advances made
in respect of tangible and intangible assets in the course of their construction and installation.
4.4 Intangible assets
These are stated at cost less accumulated amortisation. Amortisation is charged to income using
the straight-line method at the rate disclosed in note 8 to the financial statements.
Amortisation on additions is charged for the full month in which an asset is put to use and on
deletions up to the month immediately preceding the deletion.
Gains or losses on disposal of intangible assets, if any, are included in income currently.
4.5 Investment property
Investment property, representing the portion of buildings let out on rent, is stated at cost, determined
on the basis of area (square feet) rented out, less accumulated depreciation and impairment, if any.
Depreciation is charged to income by applying the reducing balance method at the rates specified
in note 9 to the financial statements. Depreciation on additions is charged for the full month in which
an asset is put to use and on deletions up to the month immediately preceding the deletion.
Maintenance and normal repairs are charged to the income and expenditure account as and when
incurred. Major renewals and improvements are capitalised and the assets so replaced, if any, are
retired.
Gains or losses on disposal of investment property, if any, are included in income currently.
61
4.6 Investments
The management of the Company determines the appropriate classification of its investments at the
time of purchase or increase in holding and classifies / reclassifies its investment as subsidiaries,
associates and joint ventures, at fair value through profit or loss account, held to maturity and available
for sale.
All investments are initially recognised at cost, being the fair value of the consideration given including
transaction costs associated with the investment except in the case of investments at fair value
through profit or loss account where transaction costs are charged to income and expenditure account
when incurred.
Available for sale investments
Investments which are intended to be held for an indefinite period of time but may be sold in response
to the need for liquidity are classified as available for sale. After initial recognition, these are stated
at fair values (except for unquoted investments where active market does not exist) with any resulting
gains or losses being taken to comprehensive income until the investment is disposed or impaired,
at which time the respective surplus or deficit is transferred to income and expenditure account.
Unquoted investments where active market does not exist and whose fair value cannot be reliably
measured are stated at cost.
Investments at fair value through profit or loss
Financial assets at fair value through profit or loss includes financial assets held-for-trading and
financial assets designated upon initial recognition as at fair value through profit or loss. These
securities are either acquired for generating a profit from short-term fluctuation in prices or are
securities included in a portfolio in which a pattern of short-term profit taking exists, and related
transaction costs are expensed out. These investments are measured at subsequent reporting dates
at fair value and resulting gains and losses are included in the net income or expenditure for the
year.
Held to maturity investments
Investments with fixed or determinable payments and fixed maturity where management has both
the positive intent and ability to hold to maturity are classified as held to maturity and are stated at
amortised cost. Provision for impairment in value, if any, is taken to income currently.
Investment in associates
Investments in associates are accounted for using the equity method, whereby the investment is
initially recorded at cost and adjusted thereafter for the post acquisition change in the Company's
share of the net assts of the associate. The income and expenditure account reflects the Company's
share of the results of the operations of the associate. Where there has been a change recognised
in the other comprehensive income of the associate, the Company recognizes its share of any change
in its other comprehensive income.
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
62
The Company determines at each reporting date whether there is any objective evidence that the
investment in the associate is impaired. If this is the case the Company calculates the amount of
impairment as the difference between the recoverable amount of the associate and its carrying value
and recognizes the same in the income and expenditure account.
Financial statements of the associates for the year ended June 30, 2011 have been used in applying
the equity method. Associates’ accounting policies conform to those used by the Company for like
transactions and events in similar circumstances.
4.7 Trade debts and other receivables
These are recognised and carried at original invoice amount less an allowance for any uncollectible
amounts. An estimate for doubtful debts is made when collection of the full amount is no longer
probable. Bad debts are written-off when identified.
4.8 Loans, advances and deposits
These are stated at cost.
4.9 Cash and cash equivalents
Cash in hand and at banks are carried at cost. For the purpose of cash flow statement, cash and
cash equivalents consist of cash in hand and at bank and short term investments that are highly
liquid in nature and are readily convertible into known amounts of cash, which are subject to insignificant
risks of changes in value.
4.10 Provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a
result of past event, it is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
4.11 Revenue recognition
- Income from initial listing fee is recognised when the securities are initially listed on the ready
board. Income from annual listing fee is recognised on an accrual basis.
- Income in respect of trading by members in shares, contracts and bonds is recognised at the
trade date.
- Income in respect of trading by members in CFS is recognised when the financing is settled.
- Rental income, facilities and equipment fees, non-operating facilities income and membership
fees are recognised on accrual basis while other fees are recognised when received.
- Investments purchased at premium or discount, are amortized through the income and expenditure
account using the effective interest rate method.
- Income from investments and bank accounts is recognised on an accrual basis.
- Dividend income is recognised when the Company’s right to receive dividend is established.
63
- Management fee from KSE Clearing House Protection Fund and KSE Investors Protection Fund
is recognised on accrual basis as disclosed in note 31 to the financial statements. .
4.12 Taxation
Current
Provision for current taxation is based on taxable income at current rates of taxation after taking into
account all tax credits and tax rebates available, if any. The tax charge as calculated above is
compared with turnover tax under Section 113 of the Income Tax Ordinance, 2001, and whichever
is higher is provided for in the financial statements.
Deferred
Deferred tax is recognised, using the balance sheet liability method, on all major temporary differences
at the balance sheet date between the tax base of assets and liabilities and their carrying amounts
for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences except for taxable temporary
differences associated with investments in subsidiaries and associates, where the timing of the
reversal of the temporary differences can be controlled and it is probable that the temporary differences
will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences and carry-forward of
unused tax losses, to the extent that it is probable that taxable profit or taxable temporary differences
will be available against which the deductible temporary differences and / or carry-forward of unused
tax losses can be utilised. The carrying amount of deferred income tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit
or taxable temporary differences will be available to allow all or part of the deferred income tax asset
to be utilized.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply
to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws)
that have been enacted or substantively enacted at the balance sheet date.
4.13 Staff retirement benefits
The Company operates an approved funded gratuity scheme (defined benefit plan) for all its permanent
employees who attain the minimum qualification period for entitlement to gratuity. Provision is made
annually, to cover obligations under the scheme, by way of a charge to income and expenditure
account, calculated in accordance with the actuarial valuation. The most recent valuation in this
regard was carried out as at June 30, 2011, using the Projected Unit Credit Method for valuation of
the scheme. Actuarial gains and losses are recognized as income or expense when the cumulative
unrecognized actuarial gains or losses for each individual plan exceeds 10% of the higher of (a) the
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
64
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR defined benefit obligation an dE (bN) theD faiEr vaDlue oJf pUlan NassEets. T3he0se, g a2ins0 or1 lo1sses are recognized
over the expected average remaining working lives of the employees participating in the plan.
4.14 Compensated absences
The Company accounts for these benefits in the period in which the absences are earned. Accrual
is made for employees compensated absences on the basis of accumulated leaves and the last
drawn pay.
4.15 Impairment
The carrying amounts of assets are reviewed at each balance sheet date to determine whether there
is any indication of impairment of any asset or a group of assets. If any such indication exists, the
recoverable amount of that asset is estimated and impairment losses are recognised in the income
and expenditure account.
4.16 Foreign currency translation
Foreign currency transactions during the year are recorded at the exchange rates approximating
those ruling on the date of the transaction. Monetary assets and liabilities in foreign currencies are
translated at the rates of exchange which approximate those prevailing on the balance sheet date.
Gains and losses on translation are taken to income currently. Non-monetary items that are measured
in terms of historical cost in a foreign currency are translated using the exchange rates as at the
dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value was determined.
4.17 Financial instruments
All the financial assets and financial liabilities are recognised at the time when the Company becomes
a party to the contractual provisions of the instrument. All the financial assets are derecognised at
the time when the Company losses control of the contractual rights that comprise the financial assets.
All financial liabilities are derecognised at the time when they are extinguished that is, when the
obligation specified in the contract is discharged, cancelled, or expires. Any gains or losses on
derecognition of the financial assets and financial liabilities are taken to income and expenditure
account currently.
All regular way purchases of financial assets are recognised on a transaction date i.e. the date the
Company receives the financial asset. All regular way sales of financial assets are recognized on
the settlement date i.e. the date the asset is delivered to the counter party. Regular way purchases
or sales of financial assets that require delivery of assets within the time generally established by
regulation or convention in the market place.
65
4.18 Offsetting of financial assets and financial liabilities
A financial asset and a financial liability is offset and the net amount is reported in the balance sheet
if the Company has a legally enforceable right to set-off the recognised amounts and intends either
to settle on a net basis or to realise the asset and settle the liability simultaneously.
5. ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial statements requires management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and various other factors
that are believed to be reasonable under the circumstances, the result of which form the basis of making,
judgements about carrying values of assets and liabilities. The estimates and underlying assumptions are
reviewed on an ongoing basis.
The estimates and judgements that have a significant effect on the financial statements are in respect of
the following:
Notes
- Useful life of assets and methods of depreciation 4.2, 4.4, 4.5,
7, 8 & 9
- Classification of investments 4.6, 10, 11 &18
- Provisions and contingencies 4.10, 25 & 26
- Deferred tax 4.12 & 21
- Post employment benefits 4.13 & 25
6. STANDARDS, INTERPRETATIONS AND AMENDMENTS TO APPROVED ACCOUNTING STANDARDS
THAT ARE NOT YET EFFECTIVE
The following revised standards, interpretations and amendments with respect to approved accounting
standards as applicable in Pakistan would be effective from the dates mentioned below against the respective
standard, interpretation or amendment:
Effective date
(accounting periods
Standard, interpretation or amendment beginning on or after)
IAS 1 Presentation of Financial Statements (Amendments) 01 July 2012
IFRS 7 Financial Instruments : Disclosures (Amendments) 01 Febrary 2010
IAS 12 Income Tax (Amendment) 01 January 2012
IAS 19 Employee Benefits (Amendment) 01 January 2013
IAS 24 Related Party Disclosures (Revised) 01 January 2011
IFRIC 14 Prepayments of a Minimum Funding Requirement (Amendment) 01 January 2011
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
66
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
2011 2010
Note (Rupees in '000)
The Company expects that the adoption of the above revisions, interpretations and amendments of the
standards will not materially affect the Company's financial statements in the period of initial application.
In addition to the above, amendments to various accounting standards have also been issued by the
IASB. Such improvements are generally effective for accounting periods beginning on or after 01 January
2011. The Company expects that such improvements to the standards will not have any material impact
on the Company's financial statements in the period of initial application.
Further, the following new standards have been issued by IASB which are yet to be notified by the SECP
for the purpose of applicability in Pakistan.
IASB Effective date
(annual periods beginning
on or after)"
Standard
IFRS 9 Financial Instruments 01 January 2013
IFRS 10 Consolidated Financial Statements 01 January 2013
IFRS 11 Joint Arrangements 01 January 2013
IFRS 12 Disclosure of Interests in Other Entities 01 January 2013
IFRS 13 Fair Value Measurement 01 January 2013
7. PROPERTY AND EQUIPMENT
Operating fixed assets - Tangible 7.1 294,819 272,344
Capital work-in-progress 7.2 13,800 142,748
308,619 415,092
67
7.1 OPERATING FIXED ASSETS – Tangible
Leasehold land 90 - - 90 99 years 58 1 - 59 31
Building on leasehold land 63,616 30,841 - 94,457 5 21,723 3,344 - 25,067 69,390
Lift, generators and
electric installation 88,813 35,383 - 124,196 25 53,738 16,897 - 70,635 53,561
Furniture and fixtures 16,837 6,042 - 22,879 20 14,076 1,560 - 15,636 7,243
Office equipment 61,539 5,931 - 67,470 20 38,042 5,417 - 43,459 24,011
Computers and related
accessories 533,288 34,303 (238) 567,353 20 & 33.33 369,742 61,429 (125) 431,046 136,307
Vehicles 13,568 756 (2,303) 12,021 20 8,028 967 (1,250) 7,745 4,276
777 ,751 113,256 (2,541) 888,466 505,407 89,615 (1,375) 593,647 294,819
2011
As at July
01, 2010
Additions Disposals As at June
30, 2011
Rate /
period
%
As at July
01, 2010
Charge for
the year
On
disposals
As at June
30, 2011
As at June
30, 2011
COST ACCUMULAT2E01D1 DEPRECIATION /
AMORTISATION
WRITTEN
DOWN
VALUE
Leasehold land 90 - - 90 99 years 57 1 - 58 32
Building on leasehold land 63,781 - - 63,616 5 19,569 2,210 (56) 21,723 41,893
(165)*
Lift, generators and
electric installation 72,852 31,309 (15,348) 88,813 25 60,260 8,307 (14,829) 53,738 35,075
Furniture and fixtures 16,752 85 - 16,837 20 13,387 689 - 14,076 2,761
Office equipment 59,307 2,232 - 61,539 20 32,351 5,691 - 38,042 23,497
Computers and related
accessories 510,569 23,519 (800) 533,288 20 & 33.33 315,568 54,974 (800) 369,742 163,546
Vehicles 15,044 724 (2,200) 13,568 20 7,888 1,340 (1,200) 8,028 5,540
738,395 57,869 (18,348) 777,751 449,080 73,212 (16,829) 505,407 272,344
(165)* (56)*
2010
As at July
01, 2009
Addition /
Transfers*
Disposals As at June
30, 2010
Rate /
period
%
As at July
01, 2009
Charge for
the year
On disposals /
on transfers*
As at June
30, 2010
As at June
30, 2010
COST ACCUMULAT2E01D1 DEPRECIATION /
AMORTISATION
WRITTEN
DOWN
VALUE
(Rupees in ‘000) (Rupees in ‘000)
(Rupees in ‘000) (Rupees in ‘000)
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
68
2011 2010
(Rupees in '000)
7.1.1 Included in additions during the year are the following
amounts transferred from capital work-in-progress:
Building on leasehold land 28,012 -
Lift, generators and electric installation 26,691 18,512
Furniture and fixtures 6,042 -
Office equipment 4,807 -
Computers and related accessories 32,083 22,743
Vehicles 735 699
98,370 41,954
7.1.2 Cost of fully depreciated assets is Rs. 241.567 (2010: Rs. 213.226) million as at the year end.
7.2 Capital work-in-progress
Tangible
Civil works - 45,149
Lift, generators and electric installation - 16,597
Computers and related accessories 4,568 33,926
Vehicles -
Intangible
Internally developed software 1,367 22,830
Internally developed market products 6,865 6,518
Computer software 11,150 27,878
23,950 152,898
Provision for impairment (10,150) (10,150)
13,800 142,748
69
8. INTANGIBLE ASSETS
9. INVESTMENT PROPERTY
Buildings on leasehold land 9.1 & 9.2 14,113 - 14,113 5 6,963 357 7,320 6,793
2011
As at July
01, 2010
Additions As at June
30, 2011
Rate
%
As at July
01, 2010
Charge for
the year
As at June
30, 2011
As at June
30, 2011
COST 2011 ACCUMULATED DEPRECIATION
WRITTEN
DOWN
VALUE
(Rupees in ‘000) (Rupees in ‘000)
Buildings on leasehold land 9.1 & 9.2 13,948 165 14,113 5 6,536 371 6,963 7,150
56*
2010
As at July
01, 2009
Transfer As at June
30, 2010
Rate
%
As at July
01, 2009
Charge for
the year/
transfer*
As at June
30, 2010
As at June
30, 2010
COST 2011 ACCUMULATED DEPRECIATION
WRITTEN
DOWN
VALUE
(Rupees in ‘000) (Rupees in ‘000)
Computer software 151,766 47,256 199,022 25 81,875 35,613 117,488 81,534
Internally developed software and
market products 49,035 54,202 103,237 25 19,343 17,311 36,654 66,583
200,801 101,458 302,259 101,218 52,924 154,142 148,117
2011
As at July
01, 2010
Additions As at June
30, 2011
Rate
%
As at July
01, 2010
Charge for
the year
As at June
30, 2011
As at June
30, 2011
COST 2011 ACCUMULATED AMORTISATION
WRITTEN
DOWN
VALUE
(Rupees in ‘000) (Rupees in ‘000)
Computer software 127,698 24,068 151,766 25 55,088 26,787 81,875 69,891
Internally developed software 29,975 19,060 49,035 25 9,969 9,374 19,343 29,692
157,673 43,128 200,801 65,057 36,161 101,218 99,583
2010
As at July
01, 2009
Additions As at June
30, 2010
Rate
%
As at July
01, 2009
Charge for
the year
As at June
30, 2010
As at June
30, 2010
COST 2011 ACCUMULATED AMORTISATION
WRITTEN
DOWN
VALUE
(Rupees in ‘000) (Rupees in ‘000)
9.1 The fair value of the investment property, as at June 30, 2011, amounted to Rs.719.744 (2010: Rs.731.309) million, which
has been arrived at on the basis of a valuation carried out by Iqbal A. Nanji & Co., independent valuers. As per the valuation
report, the valuation was carried out in accordance with the commercial rates for sale of office space prevailing in the market
for the said location.
9.2 The rental income for the year from the investment property amounted to Rs.37.942 (2010: Rs.40.941) million (note 33).
Notes
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
70
2011 2010
(Rupees in '000)
10. INVESTMENT IN ASSOCIATES -
under equity method of accounting
Unqouted companies
Central Depository Company of Pakistan Limited
[(CDC) (19,904,000 shares having face value Rs. 199,040,000)] 642,103 630,545
National Clearing Company of Pakistan Limited
[(NCCPL) (3,000,000 shares having face value Rs. 30,000,000)] 175,425 173,710
10.1 817,528 804,255
10.1 Movement schedule for associates
2011
CDC NCCPL Total
----------(Rupees in ‘000)--------
Opening Balance 630,545 173,710 804,255
Share of profit for the year 69,745 1,574 71,319
Surplus on revaluation of associates' available-for-sale investments 1,525 141 1,666
Dividend received during the year (59,712) - (59,712)
Closing balance 642,103 175,425 817,528
2010
CDC NCCPL Total
----------(Rupees in ‘000)--------
Opening Balance 622,710 190,069 812,779
Share of profit for the year 67,146 (193) 66,953
Surplus on revaluation of associates' available-for-sale investments 401 (1,166) (765)
Dividend received during the year (59,712) (15,000) (74,712)
Closing balance 630,545 173,710 804,255
Note
71
10.2 Summarised financial information of the associates of the
Company are as follows:
Country of Total Total Net Share of Revenues Interest
Name of associate incorporation assets liabilities assets net assets held %
Central Depository Company of
Pakistan Limited Pakistan 1,892,876 279,955 1,612,921 642,103 770,542 39.81
Break-up value of each Ordinary
share of Rs.10 is Rs.32.26
based on the latest audited accounts
available for the year ended
June 30, 2011.
National Clearing Company of
Pakistan Limited Pakistan 911,588 538,819 372,769 175,425 101,636 47.06
Break-up value of each Ordinary
share of Rs.10 is Rs 58.47
based on the latest audited
accounts available for the
year ended June 30, 2011.
2,804,464 818,774 1,985,690 817,528 872,178
Country of Total Total Net Share of Revenues Interest
Name of associate incorporation assets liabilities assets net assets held %
Central Depository Company of
Pakistan Limited Pakistan 1,883,735 299,849 1,583,886 630,545 817,469 39.81
Break-up value of each Ordinary
share of Rs.10 is Rs.31.68
based on the audited accounts
available for the year ended
June 30, 2010.
National Clearing Company of
Pakistan Limited Pakistan 856,910 487,785 369,125 173,710 98,666 47.06
Break-up value of each Ordinary
share of Rs.10 is Rs 57.90
based on the latest audited
accounts available for the
year ended June 30, 2010.
2,740,645 787,634 1,953,011 804,255 916,135
2011
2010
(Rupees in ‘000)
(Rupees in ‘000)
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
72
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 22001111 2010
(Rupees in '000)
11. LONG TERM INVESTMENTS
Available for sale - unquoted
JCR VIS Credit Rating Company Limited, a related party 2,500 2,500
250,000 (2010: 250,000) Ordinary shares of Rs.10 each, representing 12.50%
(2010: 12.50%) shareholding. Break-up value of each Ordinary share of Rs.10
is Rs. 31.63 (2010: Rs.27.75) based on the unaudited accounts available for the
year ended June 30, 2011.
Pakistan Mercantile Exchange Limited (PMEX), a related party
[Formerly: National Commodity Exchange Limited (NCEL)] 22,091 22,091
3,636,356 (2010: 3,636,356) Ordinary shares of Rs.10 each, representing
19.14% (2010: 19.14%) shareholding. Break-up value of each Ordinary share
of Rs.10 is Nil (2010: Nil) based on the unaudited accounts available for the
year ended June 30, 2011. The original cost of investment in
PMEX is Rs.42.091 million.
Institute of Capital Markets
200 (2010: 200) Ordinary shares of Rs.5,000 each - 1,000
Less : Written off - (1,000)
- -
24,591 24,591
12. LONG TERM DEPOSITS
Earnest money 12.1 33,819 33,819
Utilities 1,915 1,915
Others 1,426 1,405
37,160 37,139
12.1 This includes 10% of the bid amount, amounting to Rs.32.999 (2010: Rs.32.999) million, paid by the
Company to Pakistan Railways during the year ended June 30, 1993 as earnest money against the
purchase of land. However, as a result of certain legal proceedings, initiated by one of the bidders,
Pakistan Railways cancelled the sale of railway land to the Company and requested the Company
to apply for the refund of the above-referred amount.
During the year ended June 30, 2002, based upon the legal advice obtained, the Company filed a
counter suit against Pakistan Railways for the specific performance of the agreement which, if decided
in favour of the Company, may require the Company to purchase the land and pay the balance of
the purchase consideration, amounting to Rs.296.995 (2010: Rs.296.995) million. The said case is
pending adjudication in High Court of Sindh.
Note
73
13. LONG TERM LOANS
Employees - Considered good, secured 13.1 24,182 29,957
Recoverable within one year shown under current assets 15 (10,372) (9,248)
13,810 20,709
Loans outstanding for periods exceeding three years 908 5,523
Others 12,902 15,186
13,810 20,709
13.1 These personal loans are sanctioned for the purchase of motorcycles, performing Hajj and daughter
marriage. These are secured against the outstanding balances in the Employees’ Gratuity Fund. These
are recoverable in monthly installments over a period, ranging between 2 and 6 (2010: 2 and 6) years
and are interest free.
2011 2010
Note (Rupees in '000)
14. TRADE DEBTS
Unsecured
Considered good
Due from members 14.2 4,829 5,018
Due from companies 68,085 12,017
72,914 17,035
Considered doubtful
Due from companies 19,348 17,262
92,262 34,297
Provision for doubtful debts 14.1 (19,348) (17,262)
72,914 17,035
14.1 Reconciliation of provision for trade debts
Opening balance 17,262 32,072
Provision for the year 29 2,086 -
Amount written off - (14,500)
Amount recovered - (310)
Closing balance 19,348 17,262
14.2 Included herein is a sum of Rs. 0.044 (2010: Rs.0.403) million due from related parties.
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
74
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011 15. LOANS AND ADVANCES
Loans
Secured, considered good
Current portion of long term loans to employees 13 10,372 9,248
Unsecured, considered doubtful
Financial assistance to members 15.1 & 15.2 2,963 2,963
Less: Provision for doubtful receivable (2,963) (2,963)
- -
10,372 9,248
Advances, considered good
Employees 1,758 606
Suppliers 1,955 2,950
3,713 3,556
14,085 12,804
15.1 In the meeting of Board of Directors held on December 29, 2008, a decision was made that the funds
of the Company held in its books be allowed to be used for temporary financing to the broker financees
repayable within 6 months with mark-up @ 6 months' KIBOR+2% per annum, who opt to join voluntary
CFS MK II Square-up Plan of NCCPL, for payment of final losses to NCCPL on their behalf, up to the
extent of Rs.50 million or the amount of actual losses, whichever is lower, on the terms and conditions
contained in the agreement executed between the Company and the individual broker financee. The
said financing is secured against first right on the membership card and other assets including but not
limited to office(s) within the premises of the Company, securities with the Company and margin against
exposure.
15.2 The outstanding balance pertains to a Member-Financee who was expelled from the membership of the
Company on account of failure to pay his clients' / investors' legitimate claims, failure to honour arbitration
awards and non-fulfilment of his financial obligations towards the Company.
16. PREPAYMENTS
Maintenance of information technology equipments / software 9,279 5,951
Insurance 892 1,150
Others 373 2,691
10,544 9,792
2010
Note (Rupees in '000)
75
17. OTHER RECEIVABLES
Due from members 17.1 4,045 2,653
Due from non-members 17.1 21,306 16,645
Management fee receivable 31 15,036 -
Interest / profit accrued on PLS savings accounts 9,858 4,293
Due from an ex-member 17.2 6,574 6,574
Others 4,870 5,804
61,689 35,969
Less: Provision for doubtful receivable 29 (641) -
61,048 35,969
17.1 This represents amount due on account of license fee, data vending fee, advertisement and reimbursement
of electricity charges, etc. incurred by the Company.
17.2 This represents amount due from an ex-member upon the cancellation of his membership and declaration
as a defaulter. As a result thereof, certain shares of the ex-member were taken over by the Company
in order to square up the ex-member's position and are held pending the outcome of a law suit brought
against the Company by him in the Honourable High Court of Sindh (refer note 26.5, 26.6 and 26.7). The
market value of these shares as at June 30, 2011 amounted to Rs. 14.243 (2010: Rs.10.508) million.
18. SHORT TERM INVESTMENTS
Designated at fair value through profit or loss
Investment in Mutual Fund Units
NAFA Government Securities Liquid Fund - 50,000
Pakistan Cash Management Fund - A - 50,000
UBL Liquid Plus Fund - C - 50,000
- 150,000
Add: Unrealised gain on revaluation of investments - 10,744
- 160,744
Held to maturity
Term Deposit Certificates 18.1 320,406 1,052,065
Certificates of Investments 18.2 106,856 357,869
Market Treasury Bills 18.3 924,996 -
1,352,258 1,570,678
2011 2010
Note (Rupees in '000)
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
76
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR 18.1 These represent Term Depo sEit CNertiDficaEtes D(ha viJngU a faNce Eval ue3 o0f R,s .32000 (210110: Rs. 1,000) million
including interest accrued thereon of Rs.20.406 (2010: Rs. 52.065) million placed with various financial
instituitions on short term basis. The rate of return range from 13.50 % to 13.60% (2010: 11.75 % to
12.25%) per annum. These will mature latest by December 31, 2011.
18.2 These represent Certificate of Investments (having face value of Rs. 100 (2010: Rs, 350) million,
including interest accrued thereon of Rs. 6.856 (2010: Rs. 7.869) million) placed with a finanial
institution on short term basis. The rate of return is 13.75% (June 30. 2010: 11.85% to 12.05%) per
annum. These will mature latest by December 31, 2011
18.3 These represent Market Treasury Bills having cost of Rs.898.995 million and interest accrued thereon
of Rs.26.001 million. The effective rate of return ranges from 13.60 % to 13.88% per annum. These
will mature latest by June 14, 2012.
19. CASH AND BANK BALANCES
In hand 3 3
With banks on
Current accounts 19.1 & 19.3 8,226 10,355
PLS savings accounts in:
foreign currency 17,084 7,828
local currency 19.1 to 19.4 1,321,104 1,323,009
1,346,417 1,341,195
19.1 Included in ‘Current Accounts’ and ‘PLS Savings Accounts’ are Rs. 2.281 (2010: Rs.3.921) million
and Rs. 818.572 (2010: Rs.932.380) million, respectively, aggregating to Rs. 820.853 (2010: Rs.936.301)
million, representing deposits from members against exposures and losses (note 24). These deposits
are utilised by the Company in the event of default of members to recover losses therefrom, as
provided for in the relevant regulations of the Company. Rate of return on PLS savings accounts
varies from 5 % to 11.5% (2010: 4.87% to 11.25% ).
19.2 Included herein are funds earmarked by the Company against the outstanding balance in the Dara
F. Dastoor Scholarship Fund, amounting to Rs. 2.229 (2010: Rs.2.231) million (refer note 20).
19.3 Included herein are balances, aggregating to Rs.8.382 (2010: Rs.10.693) million, deposited with the
Company by members and an ex-member with respect to certain arbitration cases pending settlement
(refer note 25.1).
19.4 Included herein is Rs. 129.825 (2010: Rs. 120.087) million held by the Company on account of disposal
of membership cards of defaulting / expelled members (refer note: 25.2).
2011 2010
Note (Rupees in '000)
77
20. DARA F. DASTOOR SCHOLARSHIP FUND
Opening balance 2,231 2,238
Profit on bank deposits during the current year 20.1 220 170
2,451 2,408
Scholarships awarded during the year (222) (177)
2,229 2,231
20.1 This represents profit on bank deposits at a rate of 11.00% (2010: 8.00%) per annum earmarked
by the Company and allocated by the Board of Directors of the Company for the purposes of utilizing
the same for the scholarship of the children of employees.
21. DEFERRED TAX LIABILITY
Deductible temporary differences arising from:
Provision against financial assistance to members 1,037 1,037
Provision for debts considered doubtful 6,772 6,042
Unused tax losses 21.1 31,399 21,960
Minimum tax paid 6,208 3,049
45,416 32,088
Taxable temporary differences arising from:
Unrealised gain on revaluation of investments - (806)
Differences between written down values
and tax base of assets (39,445) (37,515)
Share of profit from associate (5,971) -
- (6,233)
21.1 The Company has not recognised deferred tax asset of Rs. 104.655 million on account of carry forward
tax losses in accordance with the accounting policy as disclosed in note 4.12.
22. LONG TERM DEPOSITS
Clearing house deposits from members 92,241 94,041
Other security deposits 3,482 3,432
95,723 97,473
2011 2010
Note (Rupees in '000)
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
78
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
23. PROVISION FOR WEALTH TAX 23.1 1,684 1,684
23.1 Included herein are (a) a sum of Rs.0.500 (2010: Rs.0.500) million, representing provision in respect
of the assessed liability for the assessment year 1999-2000 and (b) a sum of Rs.1.184 (2010: Rs.1.184)
million, representing provision for the assessment year 2000-2001 the assessment of which is currently
pending finalisation by the relevant tax authorities.
Further, the Inspecting Additional Commissioner raised an additional demand of Rs.19.184 million
in respect of assessment years 1996-97 to 1999-2000 against which various appeals have been filed
by the Company with the Income Tax Appellate Tribunal (ITAT). During the year ended June 30, 2002,
the ITAT on appeals filed by the Company allowed relief to the Company by cancelling the wealth
tax orders and allowing exemption under the Wealth Tax Act 1963. Against this decision of the ITAT,
during the year ended June 30, 2007, the Income Tax Department filed an appeal with the Honourable
High Court of Sindh against the order issued by the ITAT. Pending the resolution of these matters,
no provision has been made in the financial statements of the current year for a sum of Rs.19.184
(2010: Rs.19.184) million [note 26.17].
24. DEPOSITS FROM MEMBERS AGAINST EXPOSURES AND LOSSES
Deposits from members against exposures and losses 24.1 to 24.3 820,853 936,301
24.1 Included herein is a sum of Rs. 45.755( 2010: Rs. 19.722) million of deposits against exposures and
losses from related parties.
24.2 In addition to the amount deposited by members against their exposures and losses, the members
have also (a) pledged their shares, amounting to Rs. 3,242.711 (2010: Rs.3,961.812) million, in the
CDC account of the Company and (b) provided bank guarantees amounting to Rs. 1,040.200 (2010:
Rs.1,164.700) million.
24.3 Included here in is a sum of Rs. 237.815 (2010: 293.246) million placed in saving accounts on which
interest is paid to members at the rate ranging from 4% to 10.5% (2010: 3.87% to 10.25%).
2010
Note (Rupees in '000)
79
25. TRADE AND OTHER PAYABLES
Deposits against Arbitration 25.1 8,382 10,693
Accrued expenses 72,347 72,117
80,729 82,810
Other liabilities
Due to members 6,488 8,773
Due to non-members 274 223
Retention money 1,533 2,229
Fees and rent received in advance 23,200 15,105
Management fee refundable - 87,994
Amount held against defaulted members 25.2 129,825 120,087
Amount received in respect of employees’
motorcycle installments 1,387 1,309
Employees’ Gratuity Fund 25.3 46,395 30,049
Tax deducted at source - 10
Taxes collected from members 11,002 6,003
SECP transaction fee 315 131
Payable to members against return on
cash margins on future contracts 30.1 6,507 6,641
Workers' Welfare Fund payable 1,075 782
Others 5,175 19,592
233,176 298,928
313,905 381,738
25.1 This represents amount deposited with the Company by members with respect to certain arbitration
cases pending settlement (note 19.3).
25.2 This represents amount obtained on disposal of membership cards of defaulting / expelled members,
including profit accrued thereon, deposited in a separate bank account to be utilised for the settlement
of dues of the defaulting members, including investors claim, if any (refer note: 19.4)
25.3 Employees’ Gratuity Fund 46,395 30,049
25.3.1 Principal actuarial assumptions
Significant actuarial assumptions used in
the valuation are as follows
2011 2010
Note (Rupees in '000)
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
80
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
Discount rate 13.5% 13%
Increase in salaries 10% 10%
Expected return on plan assets 13% 13%
25.3.2 Liability recognised in the balance sheet:
Present value of obligation 113,976 118,105
Fair value of plan assets (63,588) (71,927)
50,388 46,178
Unrecognised actuarial loss (3,993) (16,129)
46,395 30,049
25.3.3 Expense recognised in Income and
Expenditure Account:
Current service cost 9,911 10,511
Interest cost 15,354 13,849
Actuarial (loss) / gain recognised during the year (9,351) 265
Expected return on plan assets 432 (10,235)
16,346 14,390
25.3.4 Movement in the liability recognised in the balance sheet:
Opening balance 30,049 15,659
Charge for the year 29.1 16,346 14,390
Closing balance 46,395 30,049
25.3.5 Actual return on plan assets 4,789 5,237
25.3.6 The expected return on plan assets was determined by considering the market expectations
and depends upon the assets portfolio of the fund, at the beginning of the year, for returns
over the entire life of the related obligation.
2010
Note Per annum
2011 2010 2009 2008 2007
25.3.7 Historical information --------------------- (Rupees in '000) ----------------------
Present value of defined
benefit obligation 113,976 118,105 115,411 100,052 61,659
Fair value of plan assets (63,588) (71,927) (85,297) (35,933) (35,099)
50,388 46,178 30,114 64,119 26,560
Experience adjustment on plan liabilities 16,266 11,762 - (443) -
Experience adjustment on plan assets (4,561) (13,610) - 1,604 -
81
26. CONTINGENCIES AND COMMITMENTS
Contingencies
26.1 The income tax assessments of the Company have been finalized up to and including the tax year
2010, corresponding to the income year ended June 30, 2010. However, the Company has filed
an application in the Honourable High Court of Sindh against the decision of ITAT in respect of the
additions made by the Taxation Officer of Rs.36.583 million on account of tax gain / (loss) on disposal
/ write off of fixed assets in tax year 2003, which is currently pending adjudication.
The management of the Company is hopeful that the outcome of the appeal would be in favour of
the Company and, hence, pending the resolution of this matter, provision amounting to Rs.15.731
million has not been made in the financial statements of the current year.
26.2 During the year ended June 30, 1997, a lawsuit was filed by a commercial bank against the Company
for the recovery of Rs.500 (2010: Rs.500) million as damages for defamation on the grounds that
the Company placed the bank on Defaulters Counter illegally and malafidely, which caused loss
of reputation to the bank. The said law suit is currently pending in the Honourable High Court of
Sindh. The management believes that, it is unlikely that the court would award substantial damages
in favour of the bank as the Company acted in good faith and public interest. Accordingly, no
provision has been made by the Company in the financial statements of the current year for any
liability that may arise as a result of this lawsuit.
26.3 During the year ended June 30, 1997, a lawsuit was filed by five investors against the Company
and an ex-member for declaration, injunction and recovery of damages, aggregating to Rs.70.00
(2010: Rs.70.00) million together with interest thereon @ 22% (2010: 22%) per annum with quarterly
rests, or any other relief that may be apt. The investors alleged that the Company had unlawfully
taken possession and disposed off some shares belonging to the petitioners that were lying with
the above-mentioned ex-member. The Company considers the said lawsuit to be untenable and
not maintainable in the court of law and has, therefore, not made provision in the financial statements
for any liability that may arise as a result of this law suit.
26.4 The Company has been named as a defendant in a lawsuit filed by an investor in the Honourable
High Court of Sindh against an ex-member and others, alleging that the shares delivered to him
were forged. As such the investor claimed that a sum of Rs.41.524 (2010: Rs.41.524) million is due
to him on this account. The Company had disposed of the membership and offices of the exmember
to meet his liabilities to other members. The plaintiff requested the Court for a restraining
order for further transfer / sale of the membership and offices of the ex-member which was granted.
Pending a final decision in this matter, no provision has been made by the Company for any liability
that may arise as a result of this lawsuit.
26.5 An ex-member filed a lawsuit during the year ended June 30, 2000 against the Company, Central
Depository Company of Pakistan Limited and the SECP, in the Honourable High Court of Sindh,
for cancelling his membership and declaring him as a defaulter. He further claimed damages of
Rs.300 (2010: Rs.300) million from each. The Company had declared him as a defaulter in
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
82
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR accordance with its regula tEionsN asD theE saDid m eJmUberN hadE no t3 ma0de, p2aym0e1nts1 to settle his liability
to the Company for the ready clearing dues and exposure and losses, aggregating to Rs.351.392
(2010: Rs.351.392) million. A sum of Rs.302.882 (2010: Rs.302.882) million including receivables
amounting to Rs.6.574 (2010: Rs.6.574) million shown under other receivables was subsequently
realized by the Company from the sale of the assets of the ex-member and the Company squared
up his position by paying Rs.48.509 (2010: Rs.48.509) million from the Clearing House Protection
Fund, which is still due from him.
The ex-member had also filed a constitutional petition against the Company, alleging certain technical
deviations on part of the Company from the existing rules and regulations which was later withdrawn
by the defaulting member. As per the legal advisor of the Company, the overall position of the
Company seems to be sound and the Company has a fairly good defence in the said lawsuit.
Accordingly, no provision has been made by the Company in the financial statements for any liability
that may arise as a result of this lawsuit (refer note 17.2).
26.6 A fund management and investment Company filed a lawsuit in the Honourable High Court of Sind
against an ex-member, as referred to in note 26.5 above, CDC, SECP and the Company during
the year ended June 30, 2000. The fund management and investment Company (the petitioner),
currently being represented by an official liquidator as the petitioner has since gone into liquidation,
alleged that the Company had unlawfully taken the delivery of shares for which the petitioner had
entered into contracts for purchase with the ex-member, discussed above. The petitioner claimed
declaration, injunction and delivery of the undelivered shares and damages of Rs.500.00 (2010:
Rs.500.00) million. According to the legal advisor, the Company has a very good defence in the
said lawsuit. For this reason, no provision has been made by the Company in the financial statements
for any liability that may arise as a result of this lawsuit (refer note 17.2).
26.7 In addition to the lawsuits disclosed in note 26.5 & 26.6 above, five law suits in prior years, involving
the ex-members’ default were filed by Mr. Iftikhar Ahmed Shafi, Mian Nisar Elahi, Shafi Chemical
Industries, Diamond Industries Limited and Mr. Muhammad Ali, against several other defendants
and the Company in the Honourable High Court of Sindh for the recovery of damages of Rs.5,606.612
(2010: Rs.5,606.612) million, Rs.428.440 (2010: Rs.428.440) million, Rs.49.777 (2010: Rs.49.777)
million, Rs.743.026 (2010: Rs.743.026) million, and Rs. 23.419 (2010: 23.419) million respectively,
for declaration, injunction, recovery of shares, damages and compensation. The legal advisor of
the Company considers that above mentioned lawsuits would be decided in favour of the Company.
Hence, no provision has been made in the financial statements for any liability that may arise as
a result of these lawsuits (refer note 17.2).
26.8 During the year ended June 30, 2008, the Islamabad Stock Exchange (Guarantee) Limited filed a
complaint with the Competition Commission of Pakistan (the Commission) against the Company
alleging abuse of its dominant position in securities market in contravention of Section 3 of the
Competition Ordinance, 2007. The Commission after giving due consideration issued a show cause
notice to the Company, against which the Company filed a petition in the Honourable High Court
of Sindh. The Court allowed the Commission to proceed further but restrained it from passing any
final order. The Islamabad Stock Exchange filed two separate civil petitions for leave to appeal
against orders of the Honourable High Court of Sindh in the Honourable Supreme Court of Pakistan.
83
The Honourable Supreme Court of Pakistan in its Order dated November 13, 2008 vacated the
above stay order and disposed off the stay application and fixed the petition for regular hearing.
Further, on May 29, 2009 the Commission passed a final order and directed the Company to take
corrective measures along with the other exchanges of Pakistan and to enter into an arrangement
similar to that existing between Lahore Stock Exchange and Islamabad Stock Exchange. In case
of failure to comply with the direction of the Commission, the Company will be liable to pay a penalty
of Rs.50 (2010: Rs. 50) million at the end of the six month period and thereafter an additional penalty
of Rs.250,000 per day, if the non-compliance continues. The Company has filed an appeal before
the Supreme Court against the Commission's Order. As per the legal advisor, the Company has a
reasonable case in respect of the above. Hence, no provision for any liability which may arise in
this regard has been made in the financial statements of the Company.
26.9 The single bench of the Competition Commission (the Commission) of Pakistan passed an order
on March 18, 2009, thereby penalizing the Company for a sum of Rs.6 (2010: Rs. 6) million for
placement of floor. The Company filed an appeal before the Appellate Bench of the Commission .
The Commission after conducting multiple hearings of the said appeal finally issued its order on
November 26, 2009. The Commission reduced the penalty by 50% (fifty percent) restricting it to a
nominal sum of Rs. 500,000/- .The Company filed an appeal in Honorable Supreme Court of
Pakistan against the Order dated November 26, 2009 passed by the Appellate Bench of the
Commission. On February 11, 2010, the case was fixed for hearing of application for interim relief.
The Advocate for the Commission undertook on behalf of the Commission that no coercive action
will be taken against KSE in pursuance of the impugned Order till next date of hearing. The legal
advisor of the Company is confident that the said appeal would ultimately be decided in favour of
the Company and, hence, no provision has been made in these financial statements.
26.10 A member filed a suit against the Company, the SECP and others claiming that they are a corporate
brokerage house and have around 200 clients trading in shares of scripts of companies listed at
the Exchange.
One such company, M/s. Noorie Textile Mills Limited (Noorie), is also listed with Exchange. CDC
found some irregularity in the shares of Noorie, such that the paid up capital of Noorie was wrongly
entered into CDS as Rs.589.600 million instead of Rs.59.860 million. On September 02, 2008, after
due enquiry, the CDC revoked Noorie‘s CDS eligibility.
Accordingly, the SECP vide its notification dated September 02, 2008 suspended CDC participant
status of the member (plaintiff) and froze the subaccounts of two of its clients who were dealing in
Noorie’s shares. The effect of notification was that plaintiff’s access to the Exchange was denied.
The plaintiff being aggrieved sustained losses and damages amounting to Rs.206 (2010: Rs. 206)
million. The Court on application of the plaintiff ordered suspension of the SECP notification.
Subsequently, a counter affidavit was filed by the Company to modify the stay order and plaintiff
was restrained from disposing off its assets. As per the legal advisor, the Company has a reasonable
case in respect of the above. Hence, no provision for any liability which may arise in this regard
has been made in the financial statements of the Company.
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
84
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR 26.11 An investor has filed a cla imE ofN RsD.2.8E (20D10: 2J.8U) miNllionE as a3 s0uit ,fo r2 re0cov1er1y and an application
for appointment of receiver against the Company and an ex-Member. Written statement and Counter
Affidavit have been filed on behalf of the Company. As per the legal advisor, the Company has a
reasonable case in respect of the above. Hence, no provision for any liability which may arise as
result of the lawsuit in the financial statements of the Company.
26.12 The investor has filed a claim of Rs.15 (2010: Rs. 15) million as a suit for declaration, permanent
/ perpetual injunction, recovery and damages against the Company and certain other parties including
the ex-member (who was declared defaulter by the Company) due to securities transactions
undertaken by the investor through the ex-member. The investor also sought injunction and direction
against the Company to restrain from dealing with creating third party rights in the securities. The
management believes that, it is unlikely that the Court would award damages in in favour of the
investor. Accordingly, no provision has been made by the Company in the financial statements for
any liability that may arise as a result of this lawsuit.
26.13 As a result of a dispute between the Company and a member (suspended), whereby the member
(suspended) was not sharing certain information relating to trading of shares, the Company
complained to the SECP and the member (suspended) fearing about any coercive action by the
Company and SECP, filed a suit against the Company in the Honourable High Court of Sindh.
However, the SECP before filing the law suit by the member , had already suspended the license
of the brokerage of the member. The member (suspended) has filed the above law suit for declaration,
permanent injunction, mandatory injunction and damages of Rs. 2,000 (2010: Rs 2,000) million
against the Company. The member (suspended) sought direction against the Company to restore
its membership and registration to its original position. However, the management believes that, it
is unlikely that the Court would award damages in in favour of the investor. Accordingly, no provision
has been made by the Company in the financial statements for any liability that may arise as a
result of this lawsuit.
26.14 An investor was using the services of an expelled member for trading of securities of listed companies.
However, the investor claimed that the expelled member with malafide intentions misappropriated
funds and trading profit and fictitiously transferred them in the names of his relatives. In March,
2010, the investor requested the expelled member to liquidate his shares, however, the expelled
member kept on delaying the matter which created doubts. In view of various complaints against
the expelled member, The Company under its Notice dated August 26, 2010 expelled its membership.
The investor alleged that the Company despite various objections and in violation of provision /
regulations conveniently permitted the expelled member to function (prior to August 26, 2010).
Accordingly, during the year, the investor filed a lawsuit in the High Court of Sindh of Rs. 20 million
against the Company and other parties for the award of damages. However, the management
believes that, it is unlikely that the Court would award damages in in favour of the investor. Accordingly,
no provision has been made by the Company in the financial statements for any liability that may
arise as a result of this lawsuit.
26.15 During the current year, a member filed a suit in the Honourable High Court of Sindh against the
SECP, the Company and others whereby the member needed that it has suffered losses on account
of trades executed by one of its client/investor. Further, the SECP asks the Company to initiate any
85
inquiry against the member and thereafter requiring the member to maintain status qou in respect
of the securities retained by the Company. The member has therefore sought judgment in decree
of the Court, among others to:
- declare that the show cause notice issued by SECP and the directions issued by SECP to the
Company are unlawful and without jurisdiction.
- declare that the inquiry being conducted by the Company on SECP's direction is void and
without any lawful justification.
- restrain the SECP and the Company from cancelling the member's license/membership or
from taking any coercive action against them.
- award damages of Rs. 50 million in favour of the member and against all the defendants (jointly
and severally liable) for harassing and damaging the member's reputation.
The management of the Company believes that no provision against the above matter is required
to be made in these financial statements. The said matter is dealt with by the in house legal
department of the Company.
26.16 In addition to the law suits disclosed above, thirty (2010: thirty two) law suits having no financial
effect on the Company have also been filed against the Company.
26.17 Contingency relating to wealth tax amounts to Rs.19.184 (2010: Rs.19.184) million, as discussed
in detail in note 23. Pending resolution of this matter, no provision has been made in the financial
statements of the current year for any liability that may arise on this account.
The potentail financial impact of the contingencies disclosed in notes 26.1 to 26.17 above, aggregated
to Rs. 10,642.006 (2010: Rs.10,572.006) million at the end of the current year. No provision has been
made in the financial statements for any liability that may arise as a result of these lawsuits as the
management is confident about the favourable outcome of above stated matters.
Commitments
26.18 Capital expenditure
Aggregate commitments for capital expenditure at the end of the year were Rs. 21.346 (2010:
Rs.31.096) million.
26.19 Others
Commitment for professional charges in respect of various services at the end of the year amounted
to Rs. 32.29 (2010: Rs.34.305) million.
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
86
27. INCOME FROM LISTING
Annual listing fees 57,281 39,268
Initial listing fees 114,030 97,976
171,311 137,244
28. INCOME FROM OPERATIONS
Trading fees 44,986 69,423
Facilities and equipment fees 55,860 81,504
Income from non-trading facilities 21,058 15,247
Membership fees 2,010 2,070
Other fees 7,277 14,645
131,191 182,889
29. ADMINISTRATIVE EXPENSES
Salaries and other benefits 29.1 308,435 336,225
Property rent and tax 1,294 1,294
Fuel and power 31,631 26,969
Repairs and maintenance 16,598 12,871
Computer maintenance and related expenses 61,347 64,836
Insurance 7,164 6,643
Telephone, courier and postage 3,572 4,705
Printing and stationery 6,723 5,548
Donations 29.2 1,200 500
Audit fee 650 650
Legal and professional charges 9,800 14,188
Depreciation
- operating fixed assets 7.1 89,615 73,212
- investment property 9 357 371
Amortisation of intangible assets 8 52,924 36,161
Travelling and conveyance 1,850 3,038
Entertainment expenses 3,034 3,552
Reception, meetings and functions 3,016 2,411
Advertisements, marketing and development 1,584 2,234
Provision against financial assistance to members - 2,963
Provision for trade debts considered doubtful 14.1 2,086 -
Provision against other receivables 17 641 -
Investment written off - 1,000
Security expenses 10,493 14,533
Subscription fee 1,800 498
Other expenses 564 500
616,378 614,902
2011 2010
Note (Rupees in '000)
87
29.1 Included herein is a sum of Rs.16.346 (2010: Rs.14.390) million and Rs.27.919 (2010: Rs.18.508)
million in respect of retirement benefits and compensated absences, respectively.
29.2 Donations are paid to a Medical Institution, as per the policy approved by Board of Directors, in which
none of the directors of the Company is interested in any capacity.
30. FINANCIAL AND OTHER CHARGES
Return on cash margin against future contracts 30.1 22,168 20,863
Provision against contribution for Workers' Welfare Fund 1,075 782
Bank charges 70 56
Exchange loss 62 -
Loss on sale of fixed assets 2 -
23,377 21,701
30.1 Pursuant to the implementation of new risk management system with effect from December 04, 2006,
the Company has accrued return on cash margins deposited by members against future contracts
at various rates ranging between 4% and 10.5% (2010: 3.87% and 10.25%) per annum, after deducting
1% service charges, as per the Directive issued by the SECP.
31. MANAGEMENT FEE
The Company manages KSE Clearing House Protection Fund and KSE Investors Protection Fund which
includes provision of services related to finance & investment, risk management and customers services
and investors complaints. The Board of Directors of the Company in its meeting held on September 8, 2011
has approved a management fee charge from such funds with effect from July 1, 2010 @ 0.5% p.a. of the
respective fund size as at June 30 of the preceding financial year subject to a maximum of Rs. 10 million
per fund. Accordingly, an aggregate sum of Rs. 15.036 million has been accrued as management fee income
in the financial statements. Previously, the Board of Directors of the Company in its meeting held on
September 30, 2010 had decided to discontinue such management fee charge from above referred funds
effective July 01, 2008.
32. MARK-UP / INTEREST INCOME
Return on:
short term investments 134,940 143,355
PLS savings accounts 116,254 120,425
financial assistance to members - 19,421
251,194 283,201
2011 2010
Note (Rupees in '000)
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
88
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
33. OTHER INCOME
Rental income from investment property 37,942 40,941
Realised gain on sale of investments 13,363 1,877
Dividend income 200 125
Other income 866 1,347
Gain on sale of fixed assets - 4,543
Exchange gain - 381
Unrealised gain on revaluation of investments - 10,744
Reversal of provision against receivables on recovery - 310
52,371 60,268
34. TAXATION
Current 34.1 9,248 10,527
Prior - (19,468)
Deferred (6,233) (20,823)
3,015 (29,764)
34.1 This represents turnover tax under relevant sections of the Income Tax Ordinance, 2001 due to the
tax loss during the year.
34.2 The numerical reconciliation between the accounting profit and the taxable income has not been
presented in these financial statements due to tax loss during the year.
35. REMUNERATION OF MANAGING DIRECTOR AND DIRECTORS
The aggregate amounts charged in the financial statements for the year in respect of remuneration, including
benefits, to the Managing Director and Directors of the Company are as follows
June 30, 2011
Managing Director Directors Total
------------- (Rupees in '000) --------------
Managerial remuneration 11,121 24 11,145
Reimbursement of expenses 450 136 586
Fees - 1,020 1,020
11,571 1,180 12,751
No. of persons (also see note 35.2) 3*
*During the year, remuneration is paid to existing Managing Director for the period from May 2011 to June 2011, to the
Acting Managing Director for the period from November 2010 to April 2011 and to Ex-Managing Director for the period
from July 2010 to October 2010.
2010
Note (Rupees in '000)
89
June 30, 2010
Managing Director Directors Total
------------- (Rupees in '000) --------------
Managerial remuneration 19,244 480 19,724
Annual performance payout 11,000 - 11,000
Reimbursement of expenses 525 263 788
Fees - 1,020 1,020
30,769 1,763 32,532
No. of persons (also see note 35.2) 1
35.1 The Managing Director of the Company is also provided with the free use of Company owned and
maintained car.
35.2 The managerial remuneration and reimbursement of expenses are for 1 (2010: two) Director whereas
the fees for attending the meetings are for eight (2010: eight) Directors.
36. RELATED PARTY TRANSACTIONS
The related parties comprise of associates, companies with common directorship, staff gratuity fund, directors
and key management personnel. The Company in the normal course of business carries out transactions
with various related parties
The following are the details of transactions with related parties during the year ended 30 June 2011 and
30 June 2010.
Management fee 31
KSE Clearing House Protection Fund 10,000 (39,625)
KSE investors Protection Fund 5,036 (15,997)
15,036 (55,622)
Dividend income
Central Depository Company of Pakistan 59,712 59,712
JCR-VIS Credit Rating Company Limited 200 125
National Clearing Company of Pakistan Limited - 15,000
59,912 74,837
Income from investment property
Central Depository Company of Pakistan 6,253 11,166
National Clearing Company of Pakistan Limited 8,385 7,623
14,638 18,789
2011 2010
Note (Rupees in '000)
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
90
2011 2010
Note (Rupees in '000)
Trading fees
Aba Ali Habib Securities (Private) Limited 1,560 649
Adam Securities (Private) Limited - 581
D.J.M Securities (Private) Limited - 996
Fortune Securities Limited 495 -
Lakhani Securities (Private) Limited - 168
Muhammad Munir Muhammad Ahmed
Khanani Securities (Private) Limited - 700
Nael Capital (Private) Limited 105 -
Topline Securities (Private) Limited 410 -
Zafar Moti Capital Securities (Private) Limited 72 -
2,642 3,094
Facilities and equipment fees
Aba Ali Habib Securities (Private) Limited 403 205
Adam Securities (Private) Limited - 588
D.J.M Securities (Private) Limited - 923
Fortune Securities Limited 381 -
Lakhani Securities (Private) Limited - 18
Muhammad Munir Muhammad Ahmed
Khanani Securities (Private) Limited - 377
Nael Capital (Private) Limited 55 -
Topline Securities (Private) Limited 262 -
Zafar Moti Capital Securities (Private) Limited 149 -
1,250 2,111
Listing fees
KASB Bank Limited 10,193 -
Engro Corporation Limited 849 -
Engro Polymer & Chemicals Limited 194 -
11,236 -
91
37. FINANCIAL RISK MANAGEMENT
The Company’s principal financial liabilities comprise long term and short term deposits, accrued and other
liabilities. The financial assets comprise of short term investments, cash at bank, trade debts, loans and
advances, long term deposits and other receivables.
The Company is exposed to market risk, credit risk and liquidity risk.
37.1 Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate
because of changes in market prices. Market risk comprise of interest rate risk, equity price risk
and currency risk. The Company is exposed to market risk as a result of mismatches or gaps in
the amounts of financial assets and financial liabilities that mature or reprice in a given period. The
Company manages this risk by matching the repricing of financial assets and liabilities through risk
management strategies.
37.2 Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in market interest rates. The Company’s exposure to the risk of
changes in market interest rates relates primarily to the Company’s short term investments and
bank deposits in saving accounts. At the balance sheet date, the interest rate profile of the Company’s
interest-bearing financial instruments is as follows:
Financial assets
Short term investments 13.50 - 13.88 767,350 584,908 1,352,258
Cash and bank balances 5 - 11.5 1,338,188 - 1,338,188
2,105,538 584,908 2,690,446
Financial liabilities
Deposits from members against
exposures and losses 4 - 10.50 237,815 - 237,815
Effecitve yield
/ mark-up rate
%
Upto Six
months
More than six
months and
upto one year
2011
Interest / mark-up bearing Total
----------------------- (Rupees in '000) ------------------------
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
92
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
Financial assets
Short term investments 11.75 - 12.25 626,479 783,455 1,409,934
Cash and bank balances 4.87 - 11.25 1,330,837 - 1,330,837
1,957,316 783,455 2,740,771
Financial liabilities
Deposits from members against
exposures and losses 3.87 - 10.25 293,246 - 293,246
Effective yield
/ mark-up rate
%
Upto Six
months
More than six
months and
upto one year
June 30,
2010
Interest / mark-up bearing Total
----------------------- (Rupees in '000) ------------------------
The following table demonstrates the sensitivity of Company's income for the year to a reasonably
possible change in interest rates, with all other variables held constant.
2011 2010
Change in basis points --- (Rupees in '000) ----
+ 100 24,526 24,475
- 100 (24,526) (24,475)
Effect on income
37.3 Foreign currency risk
Foreign currency risk is the risk that the fair value of future cash flows of a financial instruement
will fluctuate because of changes in foreign exchange rates. The Company's exposure to the risk
of change in foreign exchange rates realtes only to the bank balance in saving accounts maintained
in US dollars amounting to Rs. 17.084 (2010: Rs. 7.828) million [US doallars 0.198 (2010: US
dollars 0.096) million].
The following table demonstrates the sensitivity to a reasonably possible change in the US dollar
exchange rate, with all other variables held constant, of the Company's income before tax and
reserves.
2011 +10% (1,708) (1,110)
-10% 1,708 1,110
2010 +10% (783) (509)
-10% 783 509
Change in US
dollar rate
Effect on
income
before tax
Effect on
reserves
--------------- (Rupees in '000) -----------
93
37.4 Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and
cause the other party to incur a financial loss.
The Company is exposed to credit risk on its short term investments, deposits, trade debts, loans
and advances, cash at bank and other receivables. The table below shows the maximum exposure
to credit risk for the components of the balance sheet.
Financial assets
Short term investments 1,352,258 1,570,678
Cash at bank 1,346,414 1,341,192
Trade debts 72,914 17,035
Loans and advances 24,182 29,957
Long term deposits 37,160 37,139
Other receivables 61,689 35,969
2,894,617 3,031,970
Concentration of credit risk exists when changes in economic or industry factors affect the group
of counterparties whose aggregate credit exposure is significant in relation to the Company’s total
credit exposure. The Company’s portfolio of financial assets is broadly diversified and transactions
are entered into with diverse credit worthy counterparties thereby mitigating any significant
concentration of credit risk. The table below analyses the credit quality of Company's exposure in
respect of short term investments and cash at bank:
Ratings *
AAA 38.24 1.80
AA+ 35.02 57.05
AA 15.66 12.60
AA- 6.30 15.85
A 3.50 6.35
A- 1.28 6.35
100.00 100.00
* Ratings are performed by PACRA and JCR-VIS
2011 2010
(Rupees in '000)
2011 2010
(%)
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
94
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR 37.5 Liquidity risk ENDED JUNE 30, 2011
Liquidity risk is the risk that the Company will encounter difficulties in releasing funds to meet
commitments associated with financial liabilities. Liquidity risk may result from an inability to sell
a financial asset quickly at an amount close to its fair value.
The Company's approach to managing liquidity is to ensure, as far as possible, that it will always
have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions,
without incurring losses or risking damage to the Company's reputation. The table below summarizes
the maturity profile of Company's financial liability:
Long term deposits - - 95,723 95,723
Deposits from members against
exposures and losses 546,891 273,962 - 820,853
Trade and other payables 265,059 6,507 - 271,566
Total 811,950 280,469 95,723 1,188,142
On
demand
Upto three
months
More than
one year
Total
2011
Rupees in ‘000
Long term deposits - - 97,473 97,473
Deposits from members against
exposures and losses 643,055 293,246 - 936,301
Trade and other payables 247,989 6,641 - 254,630
Total 891,044 299,887 97,473 1,288,404
On
demand
Upto three
months
More than
one year
Total
2010
Rupees in ‘000
95
38. DATE OF AUTHORISATION FOR ISSUE
These financial statements have been authorised for issue on
by the Board of Directors of the Company.
39. GENERAL
39. 1 Figures have been rounded off to the nearest thousand rupees.
39. 2 Corresponding figures have been re-arranged and re-classified wherever necessary, for
the purpose of comparison. Major reclassifications are as follows:
Statement Components Reclassification
from
Reclassification
to
Rupees in '000
Balance Sheet
Balance Sheet
Income and
Expenditure
Deposits from
members against
exposures and losses
Earnest Money
Reversal of
Management Fee
Trade and other
payables
Deposits and
prepayments
(current assets)
Administrative
Expenses
Deposits from
members against
exposures and losses
(on the face of the
balance sheet)
Long term deposits
(non-current assets)
Other Operating
Income
936,301
33,819
55,622

Chairman Managing Director
September 08, 2011
Sd/- Sd/-
The Karachi Stock Exchange (Guarantee) Limited
Annual Report 2011
96
NOTES
TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
97

Posted in: Karachi Stock Exchange Report