1. INTRODUCTION

The Securities and Exchange Commission of Pakistan (SEC) has succeeded the Corporate Law Authority (CLA) which had been administering the corporate laws in the country since 1981. The Authority was a government department attached to the Ministry of Finance and therefore lacked the financial and administrative autonomy required to build a regulatory structure conducive to the growth of the financial sector. Due to its typical bureaucratic structure, it was difficult for the CLA to effectively pursue transparency, disclosure and authenticity, and establish an upright financial sector. The rapid expansion of the market during the early 1990's further highlighted the need for the establishment of an independent regulatory body with full operational and administrative autonomy. The process of restructuring the Authority was initiated in 1997 under the Capital Market Development Plan of the Asian Development Bank (ADB). A Securities and Exchange Commission of Pakistan Act was passed by the parliament and promulgated in December 1997. In pursuance of this Act, the Securities and Exchange Commission of Pakistan, having autonomous status, became operational from January 1st 1999. The establishment of the SEC is an important milestone in the evolution of the regulatory framework for the capital market in Pakistan. The policy decisions regarding the constitution and structure of the Commission were incorporated in the 1997 Act. Powers of the Commission have been delegated to the individual Commissioners and Appellate Benches, as envisaged in the Act. A Corporate Plan for the Commission was prepared with the assistance of ADB consultants, which covers organizational structure, reporting relationships and functional profiles, information systems strategy, plans to upgrade facilities like premises etc., skills development and financial plans.

2. WHAT ARE SHARES?

Each share represents a small stake in the equity of a company. You can buy large or small lots to match the amount of money you want to invest. A company’s share price can rise or fall as a result of its own performance or market conditions. Once the shares are brought and transferred in your name your name will be entered in the company’s share register, which will entitle you to receive all the benefits of share ownership including the rights to receive dividends, to vote at the company’s general meetings to receive the company’s reports. If you decide to sell your shares you will need to deliver share certificates to the broker in time for the transaction to be completed. With the introduction of the Central Depository System (CDS), an investor can have shares in paper form or can own shares in an electronic book- entry form at the Central Depository Company (CDC).

3. WHY DO COMPANIES ISSUE SHARES?

Companies issue shares to raise money from investors. This money is used for the development and growth of businesses of companies. A Company can issue different types of shares such as ordinary shares, preference shares, shares without voting rights or any other shares as are permissible under the law. These give shareholders a stake in the company’s equity as well as a share in its profits, in the form of dividends, and a voting right at general meetings of shareholders.

4. WHY DO INVESTORS BUY SHARES?

Studies have shown that over a twenty-year span, investment in shares has provided greater returns than most other forms of savings. Shares can provide you with a regular stream of income through dividends as well as the potential for your investments to grow in value. If the prices of shares go up, you can sell them for more than you paid. This is called capital gain.

5. WHAT ARE DIVIDENDS?

Dividends are returns paid to shareholders out of the profits of the company. Returns can be in the form of cash or additional shares of the company called bonus shares. Dividends are usually paid once or twice a year depending upon the company’s profit distribution policy.

6. RISKS AND REWARDS:

Buying shares can offer advantages over saving in deposit accounts: your investment may increase in value besides paying you dividends. You share the rewards when the company does well and the price of the shares goes up. But if the company performs badly, the share price may go down and the value of your investment will be reduced. Other factors, such as the performance of the stock market as a whole and the general economic climate, may also affect the price of your shares. Investment in shares is therefore investment in ‘risk capital’. The shareholders can be rewarded for taking this risk and the potential return on your money can be higher than that on other investments. You can reduce your risks with careful planning.

7. TIPS FOR INVESTING WISELY

These Are The Tips For Investers

8. KNOW YOUR INVESTMENT PROFILE:

A wise investor chooses an investment product not only according to his goals and the amount of capital available but also according to his tolerance for risk. All investments carry a certain degree of risk. You have to determine whether you are a “risk-taker” or a “risk-averse” person. Depending on the extent of risk you intend to take, you should pursue an investment strategy (aggressive, moderate or conservative) that fits your risk profile.

9. DO YOUR HOMEWORK BEFORE YOU INVEST:

Don’t put in your money until you have understood all relevant informationregarding the investment. Prepare yourself for the vigorous homework of analyzing company’s annual reports, accounts and other statements while keeping abreast of what’s happening in the industry, country and elsewhere that may affect your investment. Consult your investment adviser/broker to get latest market information about shares you intend to buy or sell. Be skeptical of any thing picked up from rumors, particularly if you cannot rationally explain their choice.

10. THINK LONG-TERM:

Bear in mind that even in the best of securities/shares, there can be short-term aberrations. It is important to have the power to hold your investments for longer periods. Studies have shown that investments properly timed and based on strong fundamentals have been very profitable for investors in the longer term.

11. AVOID PUTTING ALL YOUR EGGS IN ONE BASKET:

The best way to minimize risk is to diversify your investments across various investment products. If equities are your sole investments, it makes sense to diversify between different companies and sectors. In this way, loss made on some investments can be absorbed by gains made in others, keeping the overall return on investments positive. You can also diversify your investment by investing in open-end funds managed under various unit trust schemes. While investing in mutual funds check the rating of the instruments. Similarly while investing in any security please check the rating if any available.

12. INVESTOR PROTECTION:

You should always ensure that the stockbroker you choose is licensed by the Securities and Exchange Commission of Pakistan (SEC) to trade. Prefer stock brokerage firms with good track record. As a shrewd investor, you should know your rights and responsibilities and should beware of the rules that govern your investments as well as the legal recourse available, in case things go wrong. You can report abuse to the SEC, whose mission is to ensure the development of a fair, efficient, and transparent securities and futures market. Although its main function is regulatory in nature, the SEC has the ultimate responsibility to protect the investor through market supervision and ensuring that its laws and regulations are complied with. Stock exchanges are the frontline regulators; they must play a proactive role. Send all your complaints in writing to the respective stock exchange(s) with full details, including the complainant’s name, address and telephone number etc. In case you do not get a response to your complaint, please contact the “Complaint Cell” in the SEC.

SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN
NIC Building,
Jinnah Avenue,
Blue Area,
Islamabad.
Fax: (92 51) 920 4915
Website : www.secp.gov.pk