Introduction
WHAT IS STOCK EXCHANGE?
A stock exchange, share market or bourse is an organization
which provides "trading" facilities for stock brokers and
traders, to trade shares of the listed companies and other
financial instruments such as Term Finance Certificates and
Derivatives. Stock exchanges also provide facilities for the
issue (listing), redemption (delisting) of securities and other
capital events including the payment of income and dividends.
Karachi Stock Exchange (KSE) is a modern market where trading
takes place with electronic trading system called Karachi
Automated Trading System (KATS), which gives the Exchange
advantages of speed and minimum cost of transactions. Trades on
an exchange are by members only.
WHY DO COMPANIES GO PUBLIC?
The primary purpose for companies to be publicly listed at the
exchange is to cost-effectively raise capital. It reduces the
company's reliance on the traditional financiers such as
financial institutions and individuals. Listing allows business
expansion without increasing borrowings or draining the
company's cash reserves. History of listed companies indicate
that companies that convert to public ownership are more likely
to become successful than control companies that remain private.
Companies that go public are also more likely to become
acquirers than control companies. IPO companies grow faster than
control companies after going public. However, both public and
private companies must disclose financial information to
regulators.
WHAT ARE SHARES?
Shares, as the name says, are shares in a limited company. Each
shareholder is a partial-owner of the company in which they have
bought shares and investors can buy and sell their shares on the
stock exchanges. Companies on incorporation issue shares, (also
called equities) and later perhaps when they are building up a
business. The original shareholders might still own them, or
they may have sold them to someone else through the stock
market. If the company makes a profit, the shareholders normally
have some of it passed to them in the form of dividends. The
amount paid in dividends varies year by year, depending on how
profitable the company has been and how much money the directors
and the company management want to keep in reserve for future
expansion.
There are different ways in which you can participate in the
stock market:
1. Directly: by buying and selling shares;
2. Indirectly: through a collective vehicle, in which shares are
grouped together, such as a mutual fund or Exchange Traded
Funds (ETFs).
THE INITIAL OFFERING OF STOCKS (IPO):
The initial offering of stocks and bonds to investors is by
definition done in the primary market (IPO) and subsequent
trading is done in the secondary market. Initial Public Offering
(IPO) is the initial sale by a company of shares of its stock to
the public in the financial market.
BOOK BULIDING PROCESS FOR NEW COMPANIES:
Book Building is the process of price discovery and pricing a
new share issue. The process by which an underwriter attempts to
determine, at what price to offer an IPO based on demand from
institutional investors for its efficient price discovery based
on actual supply and demand by informed investors.
