You may be well aware that a brokerage account is required in order to invest in the stock market. A brokerage account allows you to invest in the stock market. A brokerage account is opened with your selected stock-broker. Your stock-broker is the ‘middleman’ that connects you to the stock exchange and provides you access to investing and transacting on the Stock Exchange.
You can select your stock-broker by first shortlisting some brokerage firms, available on PSX website, based on your individual preferences and requirements. After shortlisting, you can select your brokerage firm depending on:
- Ease of communication & understanding of your defined investment objectives.
- Quality of investment advice.
- Availability of research material.
- Availability of online trading facility.
- Provision of trade confirmations.
- Brokerage charges levied.
- Physical proximity to your work-place or residence.
Once you select your stock-broker, you will have to fill out a Standardized Account Opening Form (SAOF) for your Brokerage Account. This will also enable your CDC Sub-Account. The CDC Sub-Account is an account where your shares are placed for transaction purpose. When you buy shares, the account is credited by the same and when you sell shares, the opposite takes place. A brokerage firm may have many sub-accounts whereas its main account or participant account may only be one. As an investor, you can check the veracity of the account opening form (and its terms & conditions) provided by your brokerage firm by comparing it with the available SAOF on the PSX website (https://www.psx.com.pk/psx/themes/psx/uploads/AOF.PDF).
What is CDC: CDC stands for Central Depository Company (Limited) which is the depository of shares. It is that part of the stock exchange eco-system which allows for the exchange of shares to take place through it when a trade is executed in the stock market.
If you wish to authorize someone else to operate your account, then you need to provide a letter of authorization or power of attorney for that person to be able to operate your account.
You are also well advised to open a CDC Investor Account with the CDC. A CDC Investor account provides for safe-keeping of your shares in your custody. (http://cdcpakistan.com/businesses/investor-account-services/)
After filling out your Account Opening Form and signing the same, you will be required to deposit a minimum amount to start investing in the stock market. Make sure that the same is deposited through cheque. You are also advised to keep yourself informed about the taxes and charges levied by the Stock Exchange, Central Depository Company Limited, National Clearing Company of Pakistan Limited, Securities & Exchange Commission of Pakistan, and the Federal Board of Revenue against the transactions you will carry out at the Stock Exchange.
Once you open your account and deposit your initial payment, you can invest in the stock market. Make sure that you get your Trade Confirmations from your stock-broker against your buy and sell order instructions. You are also entitled to receive your account ledgers and statements against your account activity from your stock-broker periodically.
These are the basic steps that you would require in order to open an account to start investing on PSX. We at Pakistan Stock Exchange wish you happy and prosperous investments!