DEMUTUALIZATION OF KARACHI STOCK EXCHANGE

INTRODUCTION & IMPLEMENTATION

What is Demutualization
The Demutualization means the segregation of majority ownership of a stock exchange from the right to trade on such stock exchange. Demutualization is the process of continuing an organization from its mutual ownership structure to share ownership structure. The process, as per Stock Exchanges (Corporatization, Demutualization and Integration) Act, comprises of: obtaining regulatory consents; converting membership rights into distinct trading rights and shares; and transfer of a strategic stake to an investor; public issuance and listing.

DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION

Corporate Structure
Existing Proposed

COMPANY LIMITED BY GUARANTEE

COMPANY LIMITED BY SHARES

DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION

Constitution of the Board

Existing 10 directors to include: 5 member directors; 4 SECPs nominee directors 1 Managing Director Proposed Initially, 11 directors to include: 4 directors from amongst the TRE certificate-holders; 6 SECPs nominee directors (to be replaced with directors representing strategic investor and general public) 1 Managing Director Subsequently, all directors, except the Managing Director, will be elected to the Board through votes of shareholders.

DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION

Shareholding structure
100% shares to be allotted equally among 200 existing members of KSE

40% under house account of existing members

60% in CDCs blocked account under KSEs participant ID, to be operated by the Board, and later on, to be divested in the following manner: Upto 40% to strategic investor(s) Upto 20% to general public through offer for sale Any remaining share to financial institutions

DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION

Powers of Demutualization Committee

As proposed in the EOGM
(i) To approve the valuation of KSE undertaken and revised by Deutsche Bank AG.

(ii) To enter into negotiations, finalize and execute agreements for sale of upto 40% of the total issued share capital of KSE out of the shares to be deposited into CDCs blocked account with one or more strategic investors or financial institutions at a price that is equal to or greater than the above valuation. (iii) To accept or reject an offer from a strategic investor, if the price offered is less than the valuation as referred to above. (iv) To determine the offer price for offer for sale to general public of not less than 20% of the total issued share capital of the Exchange out of the shares to be deposited into CDC blocked account.

DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION

Timelines
The Stock Exchanges (Corporatization, Demutualization and Integration) Bill was passed by the National Assembly on October 08, 2009 and by the Parliament, in its joint session held on March 27, 2012. The President of Pakistan signed the Stock Exchanges (Corporatization, Demutualization and Integration) Act on May 07, 2012 (t0) initiating a defined roadmap, as explained in the following slides.

DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION

t30 June 06, 2012 [Target: May 29]

Action point KSEs EOGM has to be held to ratify the already existing Demutualization Committee and to empower the Committee. Reference Comments Section 3 EOGM for the purpose is in session.

DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION

t45 June 21, 2012

Action point Reference Comments Exchange has to submit the following to Section the SECP: 4(1) 1. Valuation by Financial Advisor/ (a) Deutsche Bank retained to Investment Bank (can be extended to revise its earlier valuation. 120 days by SECP) 2. Revaluation of assets & liabilities by a (b) FAMCO Associates retained firm of Chartered Accountants approved along with Iqbal A. Nanjee & by SECP Co. 3. Proposed authorized and paid-up capital (c) Based on report on re-valuation and number of shares @ Rs.10/- par of KSEs assets and liabilities value 4. Names of all existing members of KSE (d) Based on final list of members to act as initial shareholders along with as at a specific cut-off date and the number and value of shares to be report on re-valuation of assets allotted to each and liabilities

CONTINUE D
DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION

t45 June 21, 2012

Action point Reference Comments 5. Names of four (4) out of current member (e) Proposed in this meeting directors to act as interim directors until the new Board is constituted under the Act 6. Proposed plan for segregation of (f) M/s. Ahmed & Qazi appointed commercial and regulatory functions of to develop the plan KSE 7. Draft Memorandum & Articles of (g) M/s. Ahmed & Qazi appointed Association of the demutualized to review & revise the previous Exchange draft 8. Proposed 5-year development plan (h) Being developed in-house along with capital expenditure estimate and sources of finance Note: Items 2 to 8 above are to be approved by the Board before submission to the Commission

DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION

t75 July 21, 2012 [Target: July 20]

Action point Reference Within 30 days from the submission of Section documents, SECP would approve Items 2 4(2) 8 above and also provide to the Exchange, names of six (6) nominee directors Comments

DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION

t84 July 30, 2012 [Target: July 24]

Action point Reference Issuance of notice of EOGM by the Section Exchange for the purpose of adoption of 5(1) new and approved Memorandum & Articles of Association of the Exchange, through Special Resolution Comments

DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION

t105 August 20, 2012 [Target: August 15]

Action point Within 30 days after SECPs approval, Exchange must: hold EOGM to adopt via Special Resolution, KSEs Memorandum & Articles of Association allot shares to approved initial shareholders in scrip-less form deposit 60% of shares allotted to each initial shareholders in a blocked account issue a certificate to each initial shareholder certifying the number of shares deposited in the blocked account issue Trading Right Entitlement (TRE) certificate to each initial shareholder Reference Section 5(1) (a) Comments

(b) (c) (d)

(e)

DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION

t112 August 27, 2012 [Target: August 22]

Action point Reference Within 7 days after EOGM, Exchange must Section deliver to concerned Registrar, the 5(3) following: Certified copy of Special Resolution for (a) adoption of Memorandum & Articles of Association Certificate from KSEs auditors, (b) certifying issue of all shares to initial shareholders in dematerialized format Certificate from CDC certifying deposit (c) of 60% of allotted shares in blocked account Comments

DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION

t119 September 03, 2012 [Target: August 29]

Action point Registrar to issue Certificate of Reregistration as evidence of change of status of the Exchange from a company limited by guarantee to company limited by shares Reference Section 6(1) Comments

Note: KSE will become a corporatized and demutualized exchange from the date of receipt of the Certificate of Re-registration.

DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION

t128 September 12, 2012 [Target: September 05]

Action point Issuance of notice for EOGM by the Exchange for purpose of election of four first directors of the demutualized Exchange Reference Section 10(2) Comments

DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION

t149 October 03, 2012 [Target: September 28]

Action point EOGM, elections and constitution of new Board of KSE Reference Section 10(2) Comments

DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION

ANY FURTHER QUESTIONS?

DEMUTUALIZATION OF KARACHI STOCK EXCHANGE: INTRODUCTION & IMPLEMENTATION