Fakiha Tariq

The year 2019 was a watershed in the history of the Pakistan Stock Exchange (PSX) when it entered into an agreement with the Shenzhen Stock Exchange (SZSE) — a key player in the global financial market. The agreement ensured regulatory transparency, which helped the PSX win international recognition. Investor confidence was another milestone that this alliance brought to the Pakistani equity market. Under this collaboration, the PSX replaced the Karachi Automated Trading System (KATS) with the New Trading System (NTS) on May 15, 2023, after two successful trials. Since its adoption, the NTS has accelerated the trading process and enhanced the PSX capacity, thus winning the confidence of both local and foreign investors. The PSX stakeholders now enjoy the uninterrupted ordering speed of 4 million per day and order processing latency speed of 2 milliseconds in active–active DR configuration. The NTS has an inbuilt intelligent analysis system, real-time alerts and supervision to facilitate investors' trading decisions.

The PSX purchased this new trading and surveillance system from the SZSE to help uplift its regulatory domain domestically and internationally. The PSX lacked financial resources to cope with the regulatory and governance issues, due to which it failed to get into the world’s charts. However, after collaboration with the SZSE, it has gained global recognition and strength in terms of trading mechanism, market transparency and investor confidence. There are 2,776 companies listed on the SZSE, while the PSX has only 526 public listings. Structure-wise, the SZSE has a section called ChiNext Board, which is dedicated to innovation and research, in addition to the Main Board, which deals with the mid- and small-size firms. The ChiNext Board has been engaged in listing and promoting the entrepreneurial ventures adding to the research and innovation domain of the Chinese economy. Currently, the Main Board and ChiNext Board have 1,521 and 1,255 companies listed on them, respectively. In contrast, the PSX has a single Main Board with 526 companies.

As mentioned above, the SZSE majorly deals with mid, small and venture firms whereas the PSX is concentrated by mid- and small-cap firms. Thus the PSX can adopt the SZSE structure of operations with ease without worrying much about the size of the firms being listed. The PSX can successfully adopt the SZSE trading system by properly catering to various factors, which may influence the stock market trading like brokers and investors knowledge of global stock markets’ mechanism and enhancing technical capacity. The SZSE trading and surveillance system faced some common teething issues in its initial launch. Thus, successful adaptability demands more research to avoid the loss of time and resources. The SZSE is a gigantic and highly developed stock market with global trading standards compared to the PSX. That is why more SZSE-PSX alliances will open doors for multiple shared opportunities to exploit. There are a number of ways in which the PSX can cooperate with the SZSE and get mutual benefits in future.

SZSE – a global standard exchange

To begin with, as the SZSE is interconnected with the Shanghai Stock Exchange and Hong Kong Stock Exchange, the PSX- SZSE alliance can open new ways for investments for the international businesses. To help realise these global investments, the SZSE can be of great help to improve market transparency related to information availability to the investors. Robust and efficient trading systems can help the PSX to be an informationally efficient market, which facilitates investors’ decisions as well. In addition to this, the PSX can also benefit from global standard surveillance features, as the SZSE is available with advanced surveillance features like real-time data monitoring, trade replay, auditing, ex-post investigation and many more.

These features have the capacity to improve the PSX’s internal working efficiency while securing the investors at the same time. Moreover, collaboration with the SZSE can provide coaching to the PSX for meeting the future requirements related to trading, like being able to cater to the increased volume of trade without system delays and bugs. The SZSE systems are capable of allowing the PSX to adopt international trade requirements and changes. Dual listing of Pakistani companies can also be considered.

SZSE and Pakistan’s entrepreneurial potential

Shenzhen is known as the Silicon Valley of China, and Shenzhen Stock Exchange is called an entrepreneur’s exchange. Introduced in 2009, the ChiNext Board aims to promote innovative startups, particularly the technology startups. China’s big tech giants like Huawei and Tencent are also listed on the SZSE. To facilitate the culture of research and innovation, the SZSE is smoothly transferring the country’s social capital to the innovative firms, thus strengthening the entrepreneurial ecosystem in China.

According to the Global Entrepreneurship Monitor GEM Report 2019-20, Pakistan ranked third among the Asia Pacific countries where people believed that entrepreneurship was being welcomed, and fourth with entrepreneurial knowledge. As per global startup ecosystem index 2022, Pakistan ranked 79th globally and 15th regionally (in Asia Pacific region). In the light of above information, Pakistan has a vast entrepreneurial potential. Therefore, by learning from the SZSE, the PSX can hugely facilitate the domestic entrepreneurs, who lack financial resources, and venture firms’ regulatory issues. By making listing easy, the PSX can tap into the country’s existing entrepreneurial potential.

Credit: INP-WealthPk