Pakistan Stock Exchange was founded in 1947 as Karachi Stock Exchange, In January 2016, Karachi Stock Exchange was renamed as Pakistan Stock Exchange after the merger of the Lahore Stock Exchange and Islamabad Stock Exchange.[7]
Investors on the exchanges include 1,886 foreign institutional investors and 883 domestic institutional investors along with about 220,000 retail investors. There are also about 400 brokerage houses which are members of the PSX as well as 21 asset management companies.[8][9]
Founded on 18 September 1947, Karachi Stock Exchange Limited (KSE) was registered in Pakistan. It was located at the Stock Exchange Building (SEB) on Stock Exchange Road, in the heart of Karachi's business district off I. I. Chundrigar Road (then known as McLeod Rd).[10] Since its establishment, the number of members at the KSE had been capped at 200, with each member possessing a trading card.[11] The value of these cards had experienced volatility, rising from slightly more than one million rupees before 1990 to approximately 40 million rupees in the mid-1990s, before settling at around 27.5 million rupees in 2002.[11]
From its founding up until May 27, 1998, the Karachi Stock Exchange (KSE) trading hall was characterized by the vocal trading cries of "La-oo" from buyers and "Lay" from sellers, a method known as open outcry.[11] The advent of foreign investors in the early 1990s catalyzed a push for modernization, supported by a $125 million loan from the Asian Development Bank for capital market reforms.[11] This led to the replacement of the traditional open outcry system with the automated Karachi Automated Trading System (KATS).[11]
Securities and Exchange Commission of Pakistan was founded in 1999 with the aim to reform the capital markets.[12] Khalid Mirza was appointed as SECP Chairman in March 2000.[13] Upon taking office, Mirza found the Karachi Stock Exchange characterized by extensive market manipulation and unethical practices.[13] Despite a market capitalization of only $6 billion, it exhibited extreme volatility and high turnover, with trading concentrated in just 30 of the 765 listed stocks.[13] Malpractices such as fund diversion, absence of margin requirements, and predatory lending were common, disadvantaging small investors.[13]Commercial banks were involved in lending to brokers who engaged in exploitative practices like "cornering."[13] Shareholder meetings were often delayed or not held, and there was a trend of companies delisting and liquidating assets, contributing to economic decline.[13] His efforts to reform the capital markets faced significant resistance, including public protests from stock exchange brokers who labeled him an "American agent."[13]
Despite efforts to clean up the market, significant issues persisted.[13] Manipulation continued, and brokers maintained substantial influence over the exchange, controlling 60 percent of its board of directors even after new SECP regulations aimed to limit their management role.[13] The SECP was granted authority to regulate accountants, but penalties for misconduct remained minimal, at $30 per offense.[13] Mirza and his team faced entrenched vested interests resistant to reform, and challenges in enforcing transparency and accountability in Pakistan's financial markets continued.[13]
On December 14, 1999, the SECP issued the Companies (Buy-back of Shares) Rules, 1999, which established detailed regulations and procedures for corporate share repurchases, commonly known as treasury stock. In 2002, Alhamd Textile Mills, a textile company based in Multan, became the first company in the history of stock exchange to buy back shares from its shareholders under these new regulations.[14]
2016–present: Pakistan Stock Exchange
The Pakistan Stock Exchange (PSX) came into existence in January 2016 when the Government of Pakistan decided to merge the three large exchange markets of the country (based in Karachi, Lahore, and Islamabad) into one combined market.[15] The PSX was launched on 11 January 2016. Prior to the formal launch, the Karachi Stock Exchange held a two-day pre-production mock trading session for all certificate holders of the three exchanges. The integration is expected to help reduce market fragmentation and create a strong case for attracting strategic partnerships necessary for providing technological expertise and assistance. The integration of the three exchanges has completed the second phase of the Stock Exchanges Demutualization and Integration Act 2012, passed by a joint session of the Parliament.[16]
The Shanghai Stock Exchange became a major shareholder with a 40% stake in the PSX.[17]: 154–155 PSX is integrated with China's stock market through the China Connect Interface, allowing Chinese investors to more easily enter Pakistan's stock markets.[17]: 155
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