Pakistans Stock Exchange was established in January 1947 under the name of Karachi Stock

Exchange. Before Pakistan Stock Exchange, Karachi stock exchange was declared best stock
market in the year 2002 according to the performance. According to the Bloomberg magazine
Pakistan also ranked 3rd in the top 10 best performing markets in the world in year 2014.
Pakistan Stock Exchange came into existence after the three main stock exchanges of Pakistan
(KSE, LSE, and ISE) were merged into one stock exchange as PSX on 11 January 2016. Its Market
Capital is US$ 98 billion and there are 532 companies registered in Pakistan Stock Exchange. The
numbers of investors in PSX are; Foreign Investors: 1886, Domestic investors: 883, and Retail
investors: 22000. Pakistan Stock Exchange is listed as world best stock market in terms of
performance in year 2009 and 2015. Average rate of return per year is 26%.
On December 22, 2016 PSX made deal with Chinese Companies in which 40% shares were sold to
them which represents 320 million shares, the deal was worth PKR8.96 billion (US$ 85m). The
reason behind the deal was that the investor base of PSX was narrow and it needed to be
expanded, and market liquidity has to be increased. Moving with international investors will make
Pakistans market towards greater market capital. However a total of 20% shares which includes
160m shares were offered to the general public.
During the year 2016-17 the index of PSX opened at 37952.76 and was closed at 44,860.84 with a
year high at 52.658.68. The rise and fall of this index depends on many factor excluding political
instability in the region and geographic issues.

In year 2016 a large amount of foreign investment was transferred out in oil and gas sector, which
has made a big impact on the index. This outflow came when the oil prices in the global market were
declined.
PSX was listed among top 5 in 2016, but now it has become world cheapest emerging market. This
issue arose when the Prime Minister of Pakistan was disqualified from his seat which made
uncertainty in the region. In 24-hours after disqualification Pakistani Rupee lost 3.5% against the US
dollar. The major beneficiary from these events are the banking sectors because high inflation rate
will led to high interest rate.

Q:What has been the effect of creating Pakistan Stock Exchange in place of ISE, LSE
and KSE?
Pakistan Stock Exchange was established on 11th January 2016, when government of Pakistan decided to
merge three main stock exchanges LSE, KSE, and ISE into one combined stock exchange. With a merger,
operations of all three stock exchanges are transferred to Karachi Stock Exchange under the name of
Pakistan Stock Exchange. 40% of PSX shares are available for listed brokers, 40% for foreign investors,
and 20% for IPO.

Due to decline in Chinese Equity, the whole global markets went into a state of great disturbance,
Pakistan was also affected by the change in international stock markets. Among Pakistani stock
exchanges KSE was most affected by global market turmoil.

The step of merging these three stock exchanges was to stabilize the Karachi Stock Exchange. Pakistan
stock exchanges were under pressure from (IFM) International financial markets that it should directly
compete with each other.
The merger of three stock exchanges will benefit Pakistan in term of increased liquidity, when a stock
trading volume is low, the stock price is high, which means that it has low liquidity. When a stock
exchange is merged the transaction cost is reduced as well as ask price of the stocks.

It will benefit Pakistan in terms of economies of scale. Economies of scales means that merger will have
combine platform for same products and price will be relatively low. It will also benefit Pakistan in terms
of economy of scope, it happens when stock exchanges merge, and more different types of products or
services are produced at lower costs in combined firms than in two separate firms. Kokkoris and Olivares
(2008) claimed that financial markets of Europe were merged to expect low trading costs among
corporate sectors via positive economic scales and synergy effects. Later it was discovered that merger
has improved European markets.

According to Pakistan finance minister Ishaq Dar, Pakistan will have a very bright future due to the
merger. He said that, Pakistan have six months of foreign exchange reserves and its economy is a stable
macro economy according to 22 international financial institutions.

In addition he said that Pakistani economy was at very risky stage during the time period of 2012-13, but
their government had played positive role in stabilizing the Pakistani economy. The merger will attract
more foreign investment in Pakistan which will further improve the richness of the country. And
Pakistani stock market will be presented to the world, which will give impression that investing in
Pakistan is a good option.

By understanding the concept behind the mergers of stock exchanges I think that this was a wise
decision made by government of Pakistan, as same decision was made by other countries such as UK,
Germany, USA, Singapore, and India. PSX is inviting new opportunities for local and foreign investors by
making one stock exchange as a main trade forum.

The merging of stock exchanges has given positive results, even with increasing pressure from
international financial sector, and ongoing tension between India and Pakistan on the line control. A
research conducted by Fazeelat Masood stated that millions of dollars are reinvested in the equity
market. And this trend will rise in the year 2017.

Every decision has positive and negative effects, the merger has overall positive results. However the
negative effect from this decision can be increased burden on Pakistani markets. If Pakistan keep using
best global practices and open to foreign investors the whole PSX will become dependent on global
trends.
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