IFMP Stock Brokers Certification (SBC), Pakistan cheat sheet

Primary market = new issuance of securities; secondary market = trading of already-issued securities between investors.

Money market instruments mature in one year or less (T-bills, commercial paper, call money); capital market instruments exceed one year (equities, bonds).

Pakistan's equity market is anchored by the Pakistan Stock Exchange (PSX); debt and money market activity is dominated by banks and the State Bank of Pakistan (SBP).

A security is a tradable claim on an issuer: equity confers ownership and residual claim; debt confers a fixed contractual claim and priority over equity.

Market functions: price discovery, liquidity provision, capital allocation, and risk transfer.

Order-driven trading matches buy and sell orders in a central limit order book; quote-driven trading relies on dealers posting two-way prices.

Price indices (such as KSE-100) are weighted baskets used as benchmarks; they measure market performance, not individual security value.

Market participants: issuers, investors (retail, institutional, foreign), brokers, market makers, custodians, and the regulator.

The Securities and Exchange Commission of Pakistan (SECP) is the apex regulator of the capital market; SBP regulates banking and monetary policy.

PSX operates the trading platform and acts as frontline regulator of its members under SECP oversight; CDC settles and holds securities in book-entry form.

The Securities Act, 2015 is the core statute governing public offers, market intermediaries, insider dealing, and market abuse.

The Securities Brokers (Licensing and Operations) Regulations frame broker licensing, capital adequacy, client money handling, and conduct obligations.

Broker licensing requires SECP registration and PSX membership; net capital and margin requirements must be maintained continuously.

Insider trading prohibitions cover trading on unpublished price-sensitive information and tipping such information to others.

Anti-money laundering obligations flow from the AMLA 2010 and SECP AML/CFT Regulations: customer due diligence, record keeping, and suspicious transaction reporting to FMU.

The NCCPL is licensed to provide clearing, settlement, and risk management services; it maintains the National Clearing and Settlement System.

A public offer requires a prospectus approved by SECP; the prospectus must disclose material facts, risk factors, and use of proceeds.

IPO = first public offer by an unlisted company; FPO/rights issue = further issuance by an already-listed company.

Rights issue offers existing shareholders pro-rata entitlement, typically at a discount to market price; renounceable rights can be sold.

Book building allows institutional investors to bid within a price band before the final offer price is fixed.

Underwriting commits a party to subscribe for unsold shares in exchange for a fee, reducing issuer subscription risk.

Private placement bypasses the public offer route and is sold to a restricted set of qualified investors under regulatory limits.

Payment and allotment must follow the disclosed timetable; oversubscription results in pro-rata allotment and refunds to unsuccessful applicants.

Lock-in and eligibility conditions may restrict promoters and pre-IPO shareholders from selling for a defined period after listing.

Trading on PSX occurs through a central limit order book; orders are matched by price, then time priority.

Order types include market, limit, stop-loss, and day versus good-till-cancelled; each carries different execution certainty.

Settlement cycle for PSX equities is T+2, meaning settlement occurs two business days after the trade date.

Circuit breakers and price limits halt or restrict trading when a security moves beyond a prescribed percentage band.

Market makers provide two-way quotes to support liquidity; brokers act as agents unless dealing as principals.

Short selling and margin financing are permitted only within regulatory limits, with securities lending arranged through NCCPL.

A trade is confirmed on the trade date but ownership transfers on settlement; the exchange guarantees trade execution, not investor profit.

Ex-dividend and ex-rights dates determine whether the buyer or seller receives the entitlement attached to the shares.

Clearing is the process of determining obligations: confirming trades, netting positions, and computing each member's securities and cash dues.

NCCPL performs central counterparty clearing for PSX trades, interposing itself between buyer and seller to reduce counterparty risk.

Multilateral netting offsets buy and sell positions per member per security, reducing the number and value of settlement deliveries.

A clearing member must post margin and contribute to the settlement guarantee fund to cover default risk.

Mark-to-market losses on open positions are collected through daily margin calls before settlement.

Trade-for-trade (gross) settlement applies where netting is not permitted; net settlement applies to ordinary market trades.

A failed or short delivery is handled through close-out, buy-in, or cash compensation under NCCPL regulations.

Clearing members are responsible for their clients' obligations; a client default is borne first by that client's margin and collateral.

Delivery is the transfer of securities from seller to buyer, effected in book-entry form through CDC rather than physical certificates.

Delivery versus payment (DVP) links securities transfer and cash payment so that one leg does not occur without the other.

On settlement date, securities are debited from the seller's CDC sub-account and credited to the buyer's sub-account.

A Central Depository Account (CDA) is held by a broker with CDC; each client has a sub-account identified by a unique account number.

Physical delivery is exceptional and requires endorsement and transfer deeds; book-entry delivery is the standard for listed securities.

Short delivery occurs when the seller does not hold sufficient securities; the buyer may receive cash compensation at the close-out price.

Pledge and lien on securities can be created in CDC records, blocking delivery until the encumbrance is released.

Delivery obligations are discharged only when the credit appears in the buyer's sub-account and the corresponding cash is paid.

Settlement is the final discharge of obligations: securities delivered and cash paid, completing the trade lifecycle.

PSX equities settle on T+2; government securities and money market instruments settle on T+0 or T+1 as specified by the SBP.

CDC is the central depository: it immobilises certificates, maintains ownership records, and processes transfers, pledges, and corporate actions.

Settlement risk includes principal risk, replacement cost risk, liquidity risk, and operational risk; DVP and CCP clearing mitigate principal risk.

Corporate actions such as bonus issues, cash dividends, and rights are processed through CDC on the basis of holdings on the record date.

A settlement guarantee fund absorbs losses if a clearing member defaults, protecting the non-defaulting counterparty.

Investors should verify holdings through CDC's investor account services; a broker's statement alone is not conclusive proof of ownership.

Suspension of settlement or a market halt is decided by the exchange and regulator; open trades are then settled per the announced procedure.

A broker acts as agent for the client and earns commission; a dealer trades as principal and earns the spread.

Client onboarding requires KYC: identity verification, beneficial ownership, source of funds, and risk profiling before account activation.

A written broker-client agreement must specify commission rates, services, dispute resolution, and the authority granted over the account.

Client money must be kept in segregated accounts and must not be commingled with the broker's own funds.

Discretionary accounts require specific written authorisation; otherwise every trade needs client instruction or consent.

A broker must issue contract notes and periodic account statements showing trades, charges, and holdings.

Conflicts of interest must be disclosed; front-running and unauthorised trading in client accounts are prohibited.

Client complaints follow an escalation path: broker's complaint cell, then PSX/regulator complaint handling, then arbitration where provided.

The Investor Protection Fund compensates eligible investors for losses caused by broker default or misappropriation, within prescribed limits.

Segregation of client assets from broker assets is the primary structural safeguard against broker insolvency.

Investors can verify broker licensing and membership status with SECP and PSX before opening an account.

Insider dealing, market manipulation, and false reporting are offences under the Securities Act, 2015, with civil and criminal penalties.

Investors have a right to receive a contract note for every trade and to dispute an erroneous entry within the stated period.

Risk disclosure statements must be provided before trading, covering market risk, liquidity risk, and leverage risk.

Complaint redressal is time-bound; unresolved complaints can be escalated to SECP's complaint handling mechanism.

Investor education and awareness programmes are conducted by SECP and PSX to improve informed participation.

Return = (ending value − beginning value + income) ÷ beginning value; it measures total gain per unit invested.

Compound annual growth rate = (ending value ÷ beginning value)^(1/n) − 1, where n is the number of years.

Present value = future value ÷ (1 + r)^n; bond price is the present value of coupons plus principal discounted at the yield.

Bond price and yield move inversely; a rise in market interest rates lowers existing bond prices.

Risk is decomposed into systematic (market-wide, non-diversifiable) and unsystematic (firm-specific, diversifiable) components.

CAPM: expected return = risk-free rate + beta × (market return − risk-free rate).

Inflation erodes real returns; the Fisher relation approximates nominal rate ≈ real rate + expected inflation.

SBP policy rate influences borrowing costs, equity valuations, and the rupee; monetary tightening typically pressures equity prices.

P/E ratio = price per share ÷ earnings per share; it expresses how much investors pay per unit of earnings.