A comparative study of impacts of dividends policy on the market value

CHAPTER 1

1.1 INTRODUCTION
Commercial management is troubled with the floating of funds diminishing the
cost of capital and allotting the funds in long term investment which involve
Capital budgeting decision. The next important decision is deciding how much
profit to retain and how much to distribute as dividend i.e. dividend decision. The
dividend is planned and declared by the Board of Directors. Dividend policy refers
to the proportion of earning distributed as dividend and the rest kept for further
investment i.e. retained earnings. Dividend policy is a strategy used by a company
to determine the amount and timing of dividend payments. The dividend policy
framed by an organization is one of the crucial issues in corporate finance since it
may have an impact on the firm’s value and shareholder wealth. From the lookout
of financial management, the important objective is to determine the dividend
policy that will maximize the market price of the shares of the firm. Dividend
policy remains one of the most dubiousproblems in corporate finance. Financial
economists have promised in designing and investigate corporate dividend policy.
Dividend policy is of two types one is managed second residual. In residual
dividend policy, dividend is paid cash left after the firm makes attractive
investments using net present value basis. The manager must apply managed
dividend policy if investors are satisfied and it reflects in share price. The best
dividend policy is the one which guide to maximize of shareholder wealth and
increase the company’s stock price. A dividend is the smallest return to the
investors in order to compensate for the money invested and the risk taken by
investing in the organization. An association pays dividend to reward existing
investors and to encourage potential investors to buy new issues of shares at higher
prices. A dividend policy of a corporation may range from a decision regarding
dividend action in a complex formal statement approved by the board of directors
and reviewed on a regular basis

1.2 NEEEDS FOR THE STUDY

Dividend policy is the set of guidelines a company uses to decide how much of its
earnings it will pay out to shareholders. This study sets out to find out the
relationship of dividends policy and the market value which is very significant and
useful for financial managers and investors in decisions making.

1.3 OBJECTIVES OF THE STUDY

The major objective of this study is:

i. To analyze the impact of dividend policy on the market value of Networth

Stock Broking Limited (NSBL)
ii. To find the relation between the shares market price and the dividend policy.
iii. To analyze the factors affecting the market value.

1.4 SCOPE OF THE STUDY:

The present study enables us to identifythe impacts of dividend policy on the

market value of Networth Stock Broking Limited and to find the comparative
between the shares market price and the dividend policy and to explore the factors
affecting the market value.The scope of this study is confined to 5 years (2011-
2015) period.
1.5RESEACH METHODOLOGY

Data collection:

In the present project work the data has been collected from readily available
sources that is secondary data like websites, newspaper. The web sites visited
Nseindia .com
Bseindia .com
Value research .com

Data analysis:

The present project work has been analysis using time series analysis with
graphical presentation.

The formula applied in the collection as follows: Correlation coefficient.

1.6 LIMITATIONS OF THE STUDY

i. This study requires lot of calculations to derive any interpretation

regarding selection of security for investment. But according to the data
insufficiency and inaccuracy it is not possible to analysis all the
securities.
Finally we cannot predict the fluctuations because there are so many factors
influence the price movements at the same time
1.7DEFINATION OF TERMS

Dividend is a distribution of a portion of a company's earnings, decided by the

board of directors, to a class of its shareholders. Dividends can be issued as cash
payments, as shares of stock, or other property.
Stock- A type of security that signifies ownership in a corporation and represents a
claim on part of the corporation's assets and earnings.
Shareholders- An individual, group, or organization that owns one or more shares
in a company, and in whose name the share certificate is issued.
Stock market- The market in which shares of publicly held companies are issued
and traded either through exchanges or over-the-counter markets.
Market value-(1)theprice at which a security is tradingandcouldpresumably be
purchased or sold.(2)Whatinvestorsbelieve a firm is worth;calculated by
multiplyingthenumber of sharesoutstanding by thecurrentmarket price of a
firm'sshares.
Share- A unit of ownership interest in a corporation or financial asset.
CHAPTER 2

2.1 LITERATURE REVIEW

The essence of the residual theory of dividend policy is that the firm will only pay
dividends from residual earnings, that is, from earnings left over after all suitable
(positive NPV) investment opportunities have been financed. Retained earnings are
the most important source for financing for most companies. A residual approach
to the dividend policy, as the first claim on retained earnings will be the financing
of the investment projects. With the residual dividend policy, the primary focus of
the firm's management is indeed on investment, not dividends. Dividend policy
becomes irrelevant, it is treated as a passive rather than an active, decision
variables. The view of management in this case is that the value of firm and the
wealth of its shareholders will be maximized by investing the earnings in the
appropriate investment projects, rather than paying them out as dividends to
shareholders. Thus managers will actively seek out, and invest the firm's earnings
in, all acceptable (in terms of risk and return) investment projects, which are
expected to increase the value of the firm. Dividends will only be paid when
retained earnings exceed the funds required to finance the suitable investment
projects. Conversely when the total investment funds required exceed retained
earnings, no dividend will be paid.

Motive for a residual policy

The motives for a residual policy, or high retentions, dividend policy commonly
include:When the effective rate of tax on dividend income is higher than the tax on
capital gains, some shareholders, because of their personal tax positions, may
prefer a high retention/low payout policy
Relevance and Irrelevance Theories of Dividend
Dividend is that portion of net profits which is distributed among the shareholders.
The dividend decision of the firm is of crucial importance for the finance manager
since it determines the amount to be distributed among shareholders and the
amount of profit to be retained in the business. Retained earnings are very
important for the growth of the firm. Shareholders may also expect the company to
pay more dividends. So both the growth of company and higher dividend
distribution are in conflict. So the dividend decision has to be taken in the light of
wealth maximization objective. This requires a very good balance between
dividends and retention of earnings.
A financial manager may treat the dividend decision in the following two
ways:
i. As a long term financing decision: When dividend is treated as a source
of finance, the firm will pay dividend only when it does not have
profitable investment opportunities. But the firm can also pay dividends
and raise an equal amount by the issue of shares. But this does not make
any sense.
ii. As a wealth maximization decision: Payment of current dividend has a
positive impact on the share price. So to maximize the price per share,
the firm must pay more and more dividends.

Dividend and Valuation

There are conflicting opinions as far as the impact of dividend decision on the
value of the firm. According to one school of thought, dividends are relevant to the
valuation of the firm. Others opine that dividends does not affect the value of the
firm and market price per share of the company.
Relevant Theory

If the choice of the dividend policy affects the value of a firm, it is considered as
relevant. In that case a change in the dividend payout ratio will be followed by a
change in the market value of the firm. If the dividend is relevant, there must be an
optimum payout ratio. Optimum payout ratio is that ratio which gives highest
market value per share.

1. Walter’s Model (Relevant Theory)

Prof. James E Walter argues that the choice of dividend payout ratio almost always
affects the value of the firm. Prof. J. E. Walter has very scholarly studied the
significance of the relationship between internal rate of return (R) and cost of
capital (K) in determining optimum dividend policy which maximizes the wealth
of shareholders.
Walter’s model is based on the following assumptions:

i. The firm finances its entire investments by means of retained earnings

only.
ii. Internal rate of return (R) and cost of capital (K) of the firm remains
constant.
iii. The firms’ earnings are either distributed as dividends or reinvested
internally.
iv. The earnings and dividends of the firm will never change.
v. The firm has a very long or infinite life.
Walter’s formula to determine the price per share is as follows:

P=

P = market price per share.

D = dividend per share.

E = earnings per share.

R = internal rate of return.

K = cost of capital.
According to the theory, the optimum dividend policy depends on the relationship
between the firm’s internal rate of return and cost of capital. If R>K, the firm
should retain the entire earnings, whereas it should distribute the earnings to the
shareholders in case the R<K. The rationale of R>K is that the firm is able to
produce more return than the shareholders from the retained earnings. Walter’s
view on optimum dividend payout ratio can be summarized as below:
i. Growth Firms (R>K):- The firms having R>K may be referred to as
growth firms. The growth firms are assumed to have ample profitable
investment opportunities. These firms naturally can earn a return which is
more than what shareholders could earn on their own. So optimum
payout ratio for growth firm is 0%
ii. Normal Firms (R=K):- If R is equal to K, the firm is known as normal
firm. These firms earn a rate of return which is equal to that of
shareholders. In this case dividend policy will not have any influence on
 the price per share.So there is nothing like optimum payout ratio for a
normal firm. All the payout ratios are optimum.
iii. Declining Firm (R<K):- If the company earns a return which is less
than what shareholders can earn on their investments, it is known as
declining firm. Here it will not make any sense to retain the earnings. So
entire earnings should be distributed to the shareholders to maximize
price per share. Optimum payout ratio for a declining firm is 100%. So
according to Walter, the optimum payout ratio is either 0% (when R>K)
or 100% (when R<K).

2. Gordon’s Model
Another theory, which contends that dividends are relevant, is the Gordon’s
model.
This model which opines that dividend policy of a firm affects its value is
based on the following assumptions:
i. The firm is an all equity firm (no debt).
ii. There is no outside financing and all investments are financed
exclusively by retained earnings.
iii. Internal rate of return (R) of the firm remains constant.
iv. Cost of capital (K) of the firm also remains same regardless of the
change in the risk complexion of the firm.
v. The firm derives its earnings in perpetuity.
vi. The retention ratio (b) once decided upon is constant. Thus the growth
rate (g) is also constant (g=br)
vii. K>g.
viii. A corporate tax does not exist.
Gordon used the following formula to find out price per share

P=

P = price per share

K = cost of capital

E1 = earnings per share

b = retention ratio

(1-b) = payout ratio

g = br growth rate (r = internal rate of return)

According to Gordon, when R>K the price per share increases as the dividend
payout ratio decreases. When R<K the price per share increases as the dividend
payout ratio increases. When R=K the price per share remains unchanged in
response to the change in the payout ratio. Thus Gordon’s view on the optimum
dividend payout ratio can be summarized as below:
i. The optimum payout ratio for a growth firm (R>K) is zero.
ii. There no optimum ratio for a normal firm (R=K)
iii. Optimum payout ratio for a declining firm R<K is 100%.
iv. Thus the Gordon’s Model’s is conclusions about dividend policy are
similar to that of Walter. This similarity is due to the similarities of
assumptions of both the models.
Bird in Hand Argument
(Dividends and Uncertainty)
Gordon revised this basic model later to consider risk and uncertainty. Gordon’s
model, like Walter’s model, contends that dividend policy is relevant. According to
Walter, dividend policy will not affect the price of the share when R = K. But
Gordon goes one step ahead and argues that dividend policy affects the value of
shares even when R=K.
The crux of Gordon’s argument is based on the following two assumptions.
i. Investors are risk averse
ii. They put a premium on a certain return and discount (penalize)
uncertain return
The investors are rational. Accordingly they want to avoid risk. The term risk
refers to the possibility of not getting the return on investment. The payment of
dividends now completely removes any chance of risk. But if the firm retains the
earnings the investors can expect to get a dividend in the future. But the future
dividend is uncertain both with respect to the amount as well as the timing. The
rational investors, therefore prefer current dividend to future dividend. Retained
earnings are considered as risky by the investors. In case earnings are retained,
therefore the price per share would be adversely affected. This behaviour of
investor is described as “Bird in Hand Argument”. A bird in hand is worth two
in bush. What is available today is more important than what may be available in
the future. So the rational investors are willing to pay a higher price for shares on
which more current dividends are paid. Therefore the discount rate (K) increases
with retention rate.
 3. Modigliani-Miller Model(Irrelevance theory)
According to MM, the dividend policy of a firm is irrelevant, as it does not affect
the wealth of shareholders. The model which is based on certain assumptions,
sidelined the importance of the dividend policy and its effect thereof on the share
price of the firm. According to the theory the value of a firm depends solely on its
earnings power resulting from the investment policy and not influenced by the
manner in which its earnings are split between dividends and retained earnings.
Modigliani-Miller Model(Irrelevance theory)is based on the assumption
i. Capital markets are perfect: Investors are rational information is freely
available, transaction cost are nil, securities are divisible and no
investor can influence the market price of the share.
ii. There are no taxes: No difference between tax rates on dividends and
capital gains.
iii. The firm has a fixed investment policy which will not change. So if
the retained earnings are reinvested, there will not be any change in
the risk of the firm. So K remains same.
iv. Floatation cost does not exist.
The substance of MM arguments may be stated as below:
If the company retains the earnings instead of giving it out as dividends, the
shareholders enjoy capital appreciation, which is equal to the earnings,
retained. If the company distributes the earnings by the way of dividends
instead of retention, the shareholders enjoy the dividend, which is equal to
the amount by which his capital would have been appreciated had the
company chosen to retain the earnings.Hence, the division of earning
between dividends and retained earnings is irrelevant from the point of view
of shareholders.http://makemynote.weebly.com/relevance-and-
irrelevance-theories-of-dividend.html
 CHAPTER 3

INDUSTRY PROFILE AND COMPANY PROFILE

3.1 INDUSTRY PROFILE

Ever since we were founded nearly 160 years ago we have working in the service
of enterprise. We are committed to deliver customer value, building on our strong
heritage of entrepreneurship, international outlook and long-term perspective. SEB
has for long played an active part in the development of societies in which are
operating.

2010-Today - The relationship bank

SEB continued focusing on areas of strength where the bank could take a leading
position. As a consequence, SEB decided to sell its German and Ukraine retail
banking businesses. The aim now is to be the leading Nordic bank for corporations
and institutions, and the top universal bank in Sweden and the Baltic countries.

2006-2009 – Supporting throughout new crisis

As the first decade of the 21st century came to a close, the world faced a financial
crisis. SEB carried out a 15.1 billion kronor rights issue to strengthen its capital
base and support customers throughout the acute crisis, with increased lending.

2000 – International expansion

In 2000 SEB completed the acquisition of BfG Bank in Germany and bought
remaining stakes in its three Baltic banks to own 100 per cent of them at year-end.
More than half the banks employees were now outside of Sweden.
1990-1999 – Crisis, internet and SEB
The Swedish economy became overheated in the 1980s, causing a severe economic
crisis at the beginning of the 1990s. S-E-Banken faced huge losses but survived
without state support. In 1996 S-E-Banken was one of the first banks in the world
to launch a complete internet bank for private clients. The bank changed its trading
name to SEB in 1998.

1972 –The merger

Stockholms Enskilda Bank and Skandinaviska Banken merge to become
Skandinaviska Enskilda Banken (S-E-Banken). A key reason for the move is to
better face growing competition from major international banks. Together the two
banks are stronger and more competitive.

1930-1940 – Skandinaviska Banken

Skandinaviska Kreditaktiebolaget incurred heavy losses as a result of the
international recession and the Kreuger crash. The state provided 215 million
kronor in loans to the bank and it took four years to pay the money back. In 1939
the bank changed its name to Skandinaviska Banken.

1910-1920 – New head office

There is great demand for capital and Skandinaviska Kreditaktiebolaget acquires
several banks to become the largest commercial bank in Sweden. In 1915
Stockholms Enskilda Banken moves its head office to Kungsträdgårdsgatan in
Stockholm.

1864 – Skandinaviska Kreditaktiebolaget founded

Danish financier Carl Fredrik Tietgen, in cooperation with André Oscar
Wallenberg, founded Skandinaviska Kreditaktiebolaget in 1864. The new bank
was a competitor to Stockholms Enskilda Bank.
1856 – Stockholms Enskilda Bank founded
André Oscar Wallenberg founded Stockholms Enskilda Bank in 1856 as
Stockholm's first private bank and one of the first commercial banks in Sweden.

Our heritage
A heritage of entrepreneurship – in the service of enterprise.

Our purpose
We believe that entrepreneurial minds and innovative companies are key in
creating a better world. We are here to enable them to achieve their aspirations and
succeed through good times and bad.

Our vision
To deliver world-class service to our customers.

Our core values

Customers first
We put our customers’ needs first, always seeking to understand how to deliver
real value.

Commitment
We are personally dedicated to the success of our customers and are accountable
for our actions.

Simplicity
We strive to simplify what’s complex. We value our customer’s time, striving to be
accessible, straightforward and transparent.

Collaboration
We achieve more because we work together. We share, challenge and learn from
our experiences as a team.
Our role in society
Banks play an important role in society. By assisting customers with financing,
investments, secure payments and asset management, we support economic
development and international trade and contribute to financial security. By
sharing expert knowledge, we help households, entrepreneurs and companies make
well-grounded decisions so that they can achieve their plans and ambitions. This
creates value for customers encourages customer loyalty, and by extension, long-
term shareholder value.

We support future generations - the core of our community investments

We support future generations. That is what permeates throughout our sponsoring
activities. We enter collaborations that highlight SEB´s role as corporate citizen in
the countries where we are active – and in areas where we have a heritage of strong
commitment.

Organization
Our stakeholders

We work with our stakeholders in the community to ensure a responsible and

sustainable business, and to increase our positive contributions. We aim for
transparency and intend to engage all stakeholders in close dialogues. Stakeholder
opinions play an important role when we develop our approach to corporate
sustainability. By listening to them we can better understand emerging trends and
material issues, and how to prioritise among them.

Customers
Relationships and trust are the foundation of everything we do. Our customers
entrust not only their money but also their aspirations and their plans for the future.
We want to be their partner in good as well as bad times and have a long-term
perspective ineverything we do. It is our job to listen, to use our knowledge in a
simple way, giving clear advice to our customers on how to realisethe dreams and
secure the future.

Employees
An engaging, inclusive and stimulating work environment encourages high quality
performance as well as high employee satisfaction and loyalty. This is in the
interest of both customers and shareholders. To retain our position as the
relationship bankin our part of the world SEB must attract, develop and retain the
best people so that we can provide the best service and experience to our
customers. Having the most committed employees is an explicit goal in SEB's
business plan.

Suppliers and partners

SEB purchases goods and services from a variety of local companies and
international groups. We require our suppliers to live up to good social and
environmental standards. We also know that our suppliers expect us to conduct a
sustainable business, and that our long-term perspective is a essential. We work
together across the value chain in order to minimize risks, future opportunities and
to ensure sustainable economic growth.

Investors and shareholders

SEB's overall goal is to create sustainable shareholder value while fulfilling the
expectations of other stakeholders. The key to achieving this goal is a strong focus
on financial performance, risk management and internal control. We also focus on
securing future competence, long-term development in customer relations, brand
reputation and long-term credit quality.

Local communities
As a bank, we are an integrated part of society, and we know thatwhat we do has
an impact. Therefore, we want to contribute tobuilding a society we all want to,
and can, be part of. In addition to the role that our business plays, we support local
communities. We share both time and money and work with carefully chosen
partners and people.
Our customers
Rewarding relationships are the cornerstones of our business. Ever since A O
Wallenberg founded SEB in 1856, we have provided financial services to assist our
customers in reaching their financial objectives.

3,000 large corporations and institutions

Our corporate customers in the Nordic region are among the largest in their
respective industries. In Germany they range from large mid-corporates to large
multinationals. Our institutional clients operate both in the Nordic countries and
internationally.

400,000 SME customers

In all, we serve approximately 400,000 small and medium-sized companies in
Sweden and the Baltic countries. Of these some 246,000 are home bank customers.

4,000,000 private customers

We have approximately 4 million private individual customers in Sweden and the

Baltic countries. Of these some 1.3 million are home bank customers. In addition,
SEB has around 27,000 private banking customers in and outside
Sweden.http://sebgroup.com/about-seb/who-we-are/organisation

3.1.2 THE NATIONAL STOCK EXCHANGE (NSE)

The National Stock Exchange (NSE) is India's leading stock exchange covering
various cities and towns across the country. NSE was set up by leading institutions
to provide a modern, fully automated screen-based trading system with national
reach. The Exchange has brought about unparalleled transparency, speed &
efficiency, safety and market integrity. It has set up facilities that serve as a model
for the securities industry in terms of systems, practices and procedures.
NSE has played a catalytic role in reforming the Indian securities market in terms
of microstructure, market practices and trading volumes. The market today uses
state-of-art information technology to provide an efficient and transparent trading,
clearing and settlement mechanism, and has witnessed several innovations in
products & services viz. demutualisation of stock exchange governance, screen
based trading, compression of settlement cycles, dematerialisation and electronic
transfer of securities, securities lending and borrowing, professionalisation of
trading members, fine-tuned risk management systems, emergence of clearing
corporations to assume counterparty risks, market of debt and derivative
instruments and intensive use of information technology.

History & Milestones

NSE was promoted by leading Financial Institutions at the behest of the

Government of India and was incorporated in November 1992 as a tax-paying
company unlike other stock exchanges in the country.

 2011-2020

 2001-2010

 1991-2000
Mar-2014 Commencement of trading of Nifty Futures on OSE

Feb-2014 NSE Launches NVIX Futures – Futures on India VIX index

Jan-2014 NSE Launches ‘NSE Bond Futures II’

May-2013 NSE launches the first dedicated Debt Platform on the Exchange

Jan-2013 Agreement on Launch of NIFTY Futures in Japan

Jan-2013 NSCCL Rated CCR AAA for fifth consecutive year

Sep-2012 NSE launches SME operations

NSE launches financial literacy initiative ' Jagruti' in Mohali, in

Jun-2012
partnership with India Post

May-2012 Futures and Options contracts on FTSE 100

NSE and India Post start Unique Financial Inclusion Initiative

Mar-2012
"Jagruti"

Mar-2012 NSE launches “EMERGE” - SME Platform

NSCCL Rated “CCR AAA” for fourth consecutive year - 28th

Dec-2011
Dec 2011

Launch of derivatives on Nifty PSE and Nifty Infrastructure

Sep-2011
Indices

Aug-2011 Launch of derivatives on Global Indices

Jul-2011 Commencement of trading in 91 Day GOI Treasury Bill - Futures

Jan-2011 NSE receives "Financial Inclusion" Award

Purpose

Committed to improve the financial well-being of people

Vision

To continue to be a leader, establish global presence, facilitate the financial

wellbeingof people.

Values

NSE is committed to the following core values:

i. Integrity
ii. Customer focused culture
iii. Trust, respect and care for the individual
iv. Passion for excellence
v. Teamwork

Our Logo
The logo of the NSE symbolizes a single nationwide securities trading facility
ensuring equal and fair access to investors, trading members and issuers all over
the country. The initials of the Exchange viz., N, S and E have been etched on the
logo and are distinctly visible. The logo symbolizes use of state of the art
information technology and satellite connectivity to bring about the change within
the securities industry. The logo symbolizes vibrancy and unleashing of creative
energy to constantly bring about change through innovation.

Products

i. Verifying your trades

ii. Registering a complaint
iii. Getting NSE Certification

NSE group companies

i. NSCCL
ii. NSETECH
iii. IISL
iv. DOTEX
v. NSE.IT
vi. NSICL

Our products

Equities

i. Equities
ii. Indices
iii. Mutual Funds
iv. Exchange Traded Funds
v. Initial Public Offerings
vi. Security Lending and Borrowing Scheme

Derivatives

i. Equity Derivatives
ii. Currency Derivatives
iii. Interest Rate Futures

Debt

i. Debt Market
ii. Corporate Bonds

Business Growth

i. CM
ii. F&O
iii. WDM
iv. RDM

The Organisation

The National Stock Exchange of India Limited has genesis in the report of the
High Powered Study Group on Establishment of New Stock Exchanges. It
recommended promotion of a National Stock Exchange by financial institutions
(FIs) to provide access to investors from all across the country on an equal footing.
Based on the recommendations, NSE was promoted by leading Financial
Institutions at the behest of the Government of India and was incorporated in
November 1992 as a tax-paying company unlike other stock exchanges in the
country.

The National Stock Exchange (NSE) operates a nation-wide, electronic market,

offering trading in Capital Market, Derivatives Market and Currency Derivatives
segments including equities, equities based derivatives, Currency futures and
options, equity based ETFs, Gold ETF and Retail Government Securities. Today
NSE network stretches to more than 1,500 locations in the country and supports
more than 2, 30,000 terminals.

With more than 10 asset classes in offering, NSE has taken many initiatives to
strengthen the securities industry and provides several new products like Mini
Nifty, Long Dated Options and Mutual Fund Service System. Responding to
market needs, NSE has introduced services like DMA, FIX capabilities, co-
location facility and mobile trading to cater to the evolving need of the market and
various categories of market participants.

NSE has made its global presence felt with cross-listing arrangements, including
license agreements covering benchmark indexes for U.S. and Indian equities with
CME Group and has also signed a Memorandum of Understanding (MOU) with
Singapore Exchange (SGX) to cooperate in the development of a market for India-
linked products and services to be listed on SGX. The two exchanges also will look
into a bilateral securities trading link to enable investors in one country to
seamlessly trade on the other country's exchange.
NSE is committed to operate a market ecosystem which is transparent and at the
same time offers high levels of safety, integrity and corporate governance,
providing ever growing trading & investment opportunities for investors.

Corporate Structure

NSE is one of the first de-mutualized stock exchanges in the country, where the
ownership and management of the Exchange is completely divorced from the right
to trade on it. Though the impetus for its establishment came from policy makers in
the country, it has been set up as a public limited company, owned by the leading
institutional investors in the country.

From day one, NSE has adopted the form of a demutualized exchange - the
ownership, management and trading is in the hands of three different sets of
people. NSE is owned by a set of leading financial institutions, banks, insurance
companies and other financial intermediaries and is managed by professionals,
who do not directly or indirectly trade on the Exchange. This has completely
eliminated any conflict of interest and helped NSE in aggressively pursuing
policies and practices within a public interest framework.

The NSE model however, does not preclude, but in fact accommodates
involvement, support and contribution of trading members in a variety of ways. Its
Board comprises of senior executives from promoter institutions, eminent
professionals in the fields of law, economics, accountancy, finance, taxation, etc,
public representatives, nominees of SEBI and one full time executive of the
Exchange.

While the Board deals with broad policy issues, decisions relating to market
operations are delegated by the Board to various committees constituted by it. Such
committees includes representatives from trading members, professionals, the
public and the management.The day-to-day management of the Exchange is
delegated to the Managing Director who is supported by a team of professional
staff.

More about Corporate Structure

i. Board of Directors
ii. Mandatory Committees
iii. NSE Advisory Committee

NSE Trading Technology

National Stock Exchange of India is one of the leading exchanges in the world
on several key parameters. Number of contracts traded relate directly to the
technology and liquidity of the exchange. NSE ranks* in top 3 globally for
Stock Futures and Index Futures and Options. Technology at the exchange
remains backstage to fulfill the demand for capacity, reliability and
performance ensuring the competitive edge of NSE as India’s number one
exchange platform.

Core trading system

NSE’s trading system, called National Exchange for Automated Trading

(NEAT), is a state of-the-art client server based application. It has uptime
record of over 99% with latency is in single digit millisecond level for all
orders entered into the NEAT system. NSE has been continuously undertaking
capacity enhancement measures so as to effectively meet the requirements of
increased users and associated trading loads.
The core trading applications of NSE run on fault tolerant servers sourced from
Stratus Technologies. Earlier generation of trading system was highly
dependent on the growth of microprocessor industry for improved scalability.
This was creating speed breakers in the growth demanded by Indian market
participants. Some time back NSE re-architected the trading system to achieve
unlimited scalability. The system now has a multi-layer architecture is designed
for unlimited scalability at every layer. Each layer of trading system can be
scaled up by adding more hardware to the layer. The re-architecting of the
system has eased out meeting the ever growing capacity needs of Trading. This
application extensively uses in-memory database technology to provide for
performance needs expected from a Matching system. The matching engine
response time can be measured in single digit millisecond for the thousands of
transactions processed by the system every second. To complement the
matching engine speed, Market Data is generated and distributed at a very high
refresh frequency. Using the Multicasting the market data access is accessible
to all trading members almost simultaneously.

NSE provides its customers a feature packed Trader Work Station (TWS) two
Front-ends, NEAT & NEAT PLUS for all the market segments. NEATPLUS
TWS is a unified frontend for multiple market segments. Apart from
distributing its own front end NSE also publishes the protocol that can be used
by Independent Software Vendors as well as Sell Side firms to develop their
own in-house systems.

DMA, Algorithmic trading and Co-location facility

Direct Market Access and Algorithmic trading was allowed in India in April
2008. DMA opened up faster access to Indian markets for financial institutions
across the world. Now a significant movement is going on all across the world,
to consume the liquidity in a better way, and increase capacities everywhere in
the markets. Better algorithms with mathematically proven strategies that
consume liquidity, and faster systems with very low latency are the need of the
day. Since laws of physics have to be obeyed, member’s systems have to come
closer to the exchange trading systems to meet the requirements of lower
latencies and faster execution. Co-location at exchange premises is the
mechanism used by exchanges to achieve these objectives.

NSE is also the exchange which has been in forefront of implementing Co-
location services and Tick-by-Tick market data product among several other
firsts. High frequency and automated trading had taken off in India with launch
of NSE’s Co-location services in Jan of 2010. The service allows renting rack
space with low latency connectivity to the exchange with the mandatory power
supply, cooling and security requirements of the industry. The facility features
include dual UPS power source and 100% DG capacity, multiple precision air
conditioning units with N+1 redundancy, standard 42 U rack with 6KVA
power and a 1Gbps network port which will provide order and market data
connectivity. Basic IT services namely Help Desk (24X7), Hardware Checks,
Incident Management (Level 1), On-site coordination, Daily reports, Named
resource (SPOC) for the account and Power ON/OFF / Boot on request are also
provided.

A significant order flow of the exchange is now passing through the Co-
location facility especially for Algorithmic Trading and Direct Market
Access(DMA). To complement the High Frequency Trading, Tick By Tick
Market Data feed generating broadcast for every transaction is provided by the
exchange. More recently Thomson Reuters’s Elektron data solution was
enabled at the co-location center to deliver high-speed connectivity for the
NSE's data.

Compatible with Financial Information Exchange (FIX Protocol), the Industry-

Standard Messaging Protocol, for Equity, Derivatives and Currency market is
achieved through NSE’s own connectivity software called as TAP (Trading
Access Point)

Now application service provisioning

NSE on Web (NOW) - A New Initiative for Members was taken up for
providing a low cost and low time to market deployment option for our
members. NOW is a near zero cost cloud paradigm based trading option. NOW
cloud provides connectivity to NSE’s Equity, Derivatives, Currency
Derivatives and Mutual funds segments and also with other trading venues. The
major benefits of using NOW are almost zero Time to Market, Infrastructure
Cost, Maintenance Cost, and System Audit, Connectivity requirement,
Upgrades and versioning overheads. The entire member community be it the
newest member or a veteran have been using NOW successfully for various
needs from basic trading to business continuity trading.

Risk management

Risk containment measures at NSE include capital adequacy requirements of

members, monitoring of member performance and track record, stringent
margin requirements, position limits based on capital, online monitoring of
member positions and automatic disablement from trading when limits are
breached. The margins for the member is calculated first for his clients and
then grossed across clients to arrive at the member's margin. The methodology
applied is based on the Value-at-Risk (VaR) Methodology. The equity segment
uses this for the its risk management whereas for derivative products Standard
Portfolio Analysis of Risk (SPAN) ® is used. SPAN is a highly sophisticated,
value-at-risk methodology that calculates performance bond/margin
requirements by analyzing the "what-if" of virtually any market scenario.

The risk management system computes positions and margins on a real time
basis. The risk computation process consists of various stages starting with the
initialization process in terms of receiving masters information, deposits of
members and receiving on-line data loads from the trading system, computing
the open positions and monitoring the violations on a real time basis. The risk
parameters are computed 5 times a day based on the intra-day volatility. Final
Margins are calculated using the end of day risk parameters calculated on end
of day volatility.

NSE introduced Cross Margining in 2008 to enhance liquidity. Cross

margining is available across Cash and F&O segment. The positions of clients
in both the Cash and F&O segments to the extent they offset each other. The
cross margin benefit is calculated in real time taking to account the clients
positions across both segment. The benefit is then grossed across all clients and
passed on to the member.http://www.nseindia.com/

3.1.3 BOMBAY STOCK EXCHANGE(BSE)

Established in 1875, BSE (formerly known as Bombay Stock Exchange Ltd.),

is Asia's first & the Fastest Stock Exchange in world with the speed of 6 micro
seconds and one of India's leading exchange groups. Over the past 140 years,
BSE has facilitated the growth of the Indian corporate sector by providing it an
efficient capital-raising platform. Popularly known as BSE, the bourse was
established as "The Native Share & Stock Brokers' Association" in 1875. BSE
is a corporatized and demutualized entity, with a broad shareholder-base which
includes two leading global exchanges, Deutsche Bourse and Singapore
Exchange as strategic partners. BSE provides an efficient and transparent
market for trading in equity, debt instruments, derivatives, mutual funds. It also
has a platform for trading in equities of small-and-medium enterprises
More than 5500 companies are listed on BSE making it world's No. 1 exchange
in terms of listed members. The companies listed on BSE command a total
market capitalization of USD 1.64 Trillion as of Sep 2015. It is also one of the
world's leading exchanges (5th largest in September 2015) for Index options
trading (Source: World Federation of Exchanges).

BSE also provides a host of other services to capital market participants

including risk management, clearing, settlement, market data services and
education. It has a global reach with customers around the world and a nation-
wide presence. BSE systems and processes are designed to safeguard market
integrity, drive the growth of the Indian capital market and stimulate innovation
and competition across all market segments. BSE is the first exchange in India
and second in the world to obtain an ISO 9001:2000 certification. It is also the
first Exchange in the country and second in the world to receive Information
Security Management System Standard BS 7799-2-2002 certification for its
On-Line trading System (BOLT). It operates one of the most respected capital
market educational institutes in the country (the BSE Institute Ltd.). BSE also
provides depository services through its Central Depository Services Ltd.
(CDSL) arm. BSE's popular equity index - the S&P BSE SENSEX - is India's
most widely tracked stock market benchmark index. It is traded internationally
on the EUREX as well as leading exchanges of the BRCS nations (Brazil,
Russia, China and South Africa).

BSE has won several awards and recognitions that acknowledge the work done
and progress made like India Innovation Award for the Big Data
implementation , ICICI Lombard & ET Now Risk Management BFSI
Company 2013, SKOCH Order of Merit Certificate was awarded to BSE for E
-Boss for qualifying amongst India's Best 2013, The Golden Peacock Global
CSR Award for its initiatives in Corporate Social Responsibility, NASSCOM -
CNBC-TV18's IT User Awards, 2010 in Financial Services category, Skoch
Virtual Corporation 2010 Award in the BSE StAR MF category and
Responsibility Award (CSR) by the World Council of Corporate Governance.
Its recent milestones include the launching of BRICSMART indices
derivatives, BSE-SME Exchange platform, S&P BSE GREENEX to promote
investments in Green India

Vision

"Emerge as the premier Indian stock exchange with best-in-class global practice in
technology, products innovation and customer service."

Heritage

BSE Ltd, the first ever stock exchange in Asia established in 1875 and the first in
the country to be granted permanent recognition under the Securities Contract
Regulation Act, 1956, has had an interesting rise to prominence over the past 140
years.
While BSE Ltd is now synonymous with Dalal Street, it was not always so. The
first venue of the earliest stock broker meetings in the 1850s was in rather natural
environs - under banyan trees - in front of the Town Hall, where Horniman Circle
is now situated. A decade later, the brokers moved their venue to another set of
foliage, this time under banyan trees at the junction of Meadows Street and what is
now called Mahatma Gandhi Road. As the number of brokers increased, they had
to shift from place to place, but they always overflowed to the streets. At last, in
1874, the brokers found a permanent place, and one that they could, quite literally,
call their own. The new place was, aptly, called Dalal Street (Brokers' Street).

The journey of BSE Ltd. is as eventful and interesting as the history of India's
securities market. In fact, as India's biggest bourse in terms of listed companies and
market capitalization, almost every leading corporate in India has sourced BSE
Ltd. services in raising capital and is listed with BSE Ltd.

Even in terms of an orderly growth, much before the actual legislations were
enacted, BSE Ltd. had formulated a comprehensive set of Rules and Regulations
for the securities market. It had also laid down best practices which were adopted
subsequently by 23 stock exchanges which were set up after India gained its
independence.

BSE Ltd., as a institutional brand, has been and is synonymous with the capital
market in India. Its S&P BSE SENSEX is the benchmark equity index that reflects
the health of the Indian economy.
Brand Identity

Bombay Stock Exchange has now adopted only its initials as the new name (BSE),
positioning itself better position as a national multi-asset financial infrastructure
institution. BSE’s strategic shift in approach, attitude and business focus is
reflected in its new tag line - Experience the New.

With renewed zeal and focus on new business opportunities, product and service
innovation, upgrades in technology, increased investor and member focus, BSE is
always pushing the envelope on all fronts. The ambition is to continually improve
and adopt new and better ways of conducting our business.

As the first stock exchange in Asia and the pioneer of securities transaction
business, BSE prides itself on being at the forefront of bringing innovations to the
Indian capital markets while creating diverse investment opportunities for the
investor community in India throughout its long history.

BSE continues to undertake several initiatives to build on its strong brand, legacy
and market position to create value for its stakeholders and the financial system.
Achievements
At par with international standards, BSE Ltd. has been a pioneer in several areas
over the decades and has many firsts and key achievements to its credit. BSE is the
first exchange in India to

i. Launch a special platform for trading in SME securities

 ii. Introduce Equity Derivatives
iii. Launch a Free Float Index - S&P BSE SENSEX
iv. Launch Exchange Enabled Internet Trading Platform
v. Obtain ISO certification for a stock exchange
vi. Exclusive facility for financial training – BSE Institute Ltd.
vii. Launch its website in Hindi and regional languages
viii. Host the popular opening-bell ceremony in Indian capital markets
ix. Launch mobile-based trading in India in Sept 2010
x. Become securities market infrastructure member of SWIFT in India and
provide corporate actions to custodians in ISO 15022 format
xi. Launched S&P BSE SENSEX Realized S&P BSE Volatility (REALVOL)
Index in Nov 2010

Besides the above, BSE has taken large strides in product and service innovation
for the benefit of its members and investors, notable ones being

i. Launch of a reporting platform for corporate bonds

ii. Launch of the S&P BSE IPO index and S&P BSE PSU website
iii. Revamp of its website with wide range of new investor-friendly features
iv. Launch of trading in S&P BSE SENSEX futures on EUREX and leading
exchanges of the BRICS nation bloc
v. Launched Smart Order Routing for members and investors
vi. Introduced SACT (SMS alert & Complaint Tracking system)
vii. Launched co-location facility at BSE premises in November 2010
viii. Reduction in membership fees to Rs. 10 lakh for new memberships to
promote financial access and inclusion
ix. Launch of web-based mutual fund trading platform for investors
Awards & Recognitions
As a pioneering financial institution in the Indian capital market, BSE has won
several awards and recognitions that acknowledge the work done and progress
made.

i. CIO Power List 2015

ii. SKOCH Renaissance Award 2014 for Contribution to Economy
iii. SKOCH Renaissance Award 2014 for Corporate Social Responsibility
iv. Net magic Innovative Champion Award – IT Consolidation growth &
Scalability 2014
v. India Innovative Awards- Big Data Innovation 2014
vi. ET Now – CISCO Technology Awards 2014
vii. Unicom –India Top 50 companies with best software 2014
viii. HR was awarded with Asia's Best Employer Brand Awards at Singapore in
two categories in August 2014
ix. Lokmat HR Leadership Award at Mumbai in June-2014
x. 50 most talented global HR leaders in Asia at the World HRD congress at
Mumbai in February-2014
xi. FIICI-Frames Best Animation Film-International Category for the Investor
Education television commercial
xii. India Innovation Award for Big Data Implementation
xiii. ICICI Lombard & ET Now Risk Manager Award in BFSI Category
xiv. SKOCH Order of Merit for E-Boss for qualifying among India’s Best 2013
xv. Indian Merchant Chamber Award in the Large Enterprise Category for use
of Information Technology
xvi. Best Managed Financial Derivatives Exchange in the Asia Pacific by the
Asian Banker
xvii. The Golden Peacock Global CSR Award for its initiatives in Corporate
Social Responsibility
xviii. BSE has won NASSCOM - CNBC-TV18’s IT User Awards, 2010 in
Financial Services category
xix. BSE has won Skoch Virtual Corporation 2010 Award in the BSE StAR MF
category
xx. Responsibility Award (CSR), by the World Council of Corporate
Governance
xxi. Annual Reports and Accounts of BSE have been awarded the ICAI awards
for excellence in financial reporting for four consecutive years from 2006
onwards
xxii. Human Resource Management at BSE has won the Asia - Pacific HRM
awards for its efforts in employer branding through talent management at
work, health management at work and excellence in HR through technology

CSR (Corporate Social Responsibility)

Corporate Social Responsibility (CSR) in BSE is aligned with its tradition of

creating wealth in the community with a three pronged focus on Education,
Health and the Environment. Besides funding charitable causes for the elderly and
the physically challenged, BSE has been supporting the rehabilitation and
restoration efforts in earthquake-hit communities of Gujarat. BSE has been
awarded the Golden Peacock Global - CSR Award for its initiatives in Corporate
Social Responsibility (CSR) by the World Council of Corporate Governance.
http://www.bseindia.com/static/about/introduction.aspx?expandable=0
SHARE KHAN, a professionally managed Investment advisory services company, developed in

the year 1985 by three young entrepreneurs with an intension to Minimization of Risk and

Maximization of Return in the field of Indian Capital markets by extensive research work.

As a sub member of NSE, BSE, MCX, NCDEX, NSDL and CDSL, which are pioneers in the

respective operations, SHARE KHAN is having more than 500 branches in all over India.

Share khan, India’s leading stock broker is the retail arm of SSKI, an organization with over

eighty years of experience in the stock market with more than 280 share shops in 120 cities and

big towns, and premier online trading destination www.sharekhan.com. Share khan offers the

trade execution facilities for cash as well as derivatives, on BSE and NSE, depository services,

commodities trading on the MCX(Multi Commodity Exchange of India Ltd) and NCDEX

(National Commodity and Derivative Exchange) and most importantly, investment advice

tempered by eighty years of broking experience.

Share khan provides the facility to trade in commodities through Share khan Commodities

Pvt.Ltd-a wholly owned subsidiary of its parent SSKI. Share khan is the member of two major

commodity exchanges MCX and NCDEX.

SSKI

Apart from Share khan, the SSKI group also comprises of institutional broking and corporate

finance. The institutional broking division caters to domestic and foreign institutional investors,

while the corporate finance division focuses on niche areas such as infrastructure, telecom and

media. SSKI owns 56% in Share khan and the balance ownership is HSBC, First Caryl and Intel

Pacific. SSKI has been voted as the top domestic brokerage house in the research category, twice

by Euro money survey and four times by Asia money survey.

SHARE KHAN is on-par with the investor expectations in providing professional services,

namely Online Trading in Equity, Commodities and F&O

 Framing of Derivative strategies

 Depository Services (D-MAT)

 Initial Public Offers (IPO) and Book Buildings

 Distribution of Mutual Funds

 Portfolio Management Service (PMS) etc., through its member

 Corporate training for executives on NCFM (National Stock Exchange Certificate inn

Financial Markets)

SHARE KHAN IS IN MARKET BECAUSE OF:

 Investor care is of paramount importance at SHARE KHAN.

 SHARE KHAN offers large avenues of investment solutions for all classes of investors under

one roof.

 SHARE KHAN experience is one of prized possession. SHARE KHAN has an experience of

more than 20 years wherein grown phenomenally.

 One of the most competitive brokerage structure.

 Hassle free trading experience.

 Timely advice along with research support to the clients through SMS and E-MAILS on

EQUITIES, DERIVATIVES, COMMODITIES, IPOs and Mutual Funds.

VALUE FOR INVESTOR'S TRUST

 INTEGRITY AND HONESTY

SHARE KHAN APPROACH:

 UN BIASED INVESTMENT ADVISORY

 PERSONALIZED ATTENTION

 RESEARCH BASED ADVISORY SERVICES

Share khan won the award by the vote of consumers around the country, as part of India’s

largest consumer study cover 7000 respondents – 21 products and services across 21 major cities.

The study, initiated by Awaaz – India’s first dedicated Consumer Channel and member of the

worldwide CNBC Network, and AC Nielsen – ORG Marg, was aimed at understanding the brand

preferences of the consumers and to decipher what are the most important loyalty criteria for the

consume in each vertical.

In order to select the award recipient, spontaneous responses, rather than prompted

responses were garnered, with an intention to glean unbiased preferences. Opinions were garnered

from owners of each of the categories, to get experiential responses, which are likely to be more

realistic and grounded in nature. Further, preference also indicates future intentions of repeat

purchases.

The reasons behind the preferences for brands were unveiled by examining the following:
  Tangible features of product / service

 Softer, intangible features like imagery, equity driving preference

 Tactical measures such as promotional / pricing schemes

“Share khan is honored to be voted as the Most Preferred Stock Broking Brand in India. Our

focus has always been to demystify the stock market and empower the investors to take informed

decisions,” said Jaideep Arora, Director, Share khan. “The Award increases Share khan’s

responsibility to persistently delight our customers with user-friendly trading experience and we

shall continue our focus to evolve business strategies that keep us aligned with our customers’

needs.”

VISION:

To Become Successful Investment Advisors by developing the strategies which are implement

able and leads to provide better returns than Bench mark portfolios.