Social Stock Exchange

• 02 Mar 2023

For Prelims: National Stock Exchange, SEBI’s ICDR Regulations, 2018, Zero Coupon Zero Principal (ZCZP) Instruments, Development Impact Bonds.

For Mains: Features of the Social Stock Exchange (SSE).

Why in News?

National Stock Exchange of India received final approval from SEBI to set up the Social Stock Exchange (SSE).

What is a Social Stock Exchange?

• About:
  • The SSE would function as a separate segment within the existing stock exchange and help social enterprises raise funds from the public through its mechanism.
  • It would serve as a medium for enterprises to seek finance for their social initiatives, acquire visibility and provide increased transparency about fund mobilisation and utilisation.
  • Retail investors can only invest in securities offered by for-profit social enterprises (SEs) under the Main Board.
    • In all other cases, only institutional investors and non-institutional investors can invest in securities issued by SEs.
• Eligibility:
  • Any non-profit organisation (NPO) or for-profit social enterprise (FPSEs) that establishes the primacy of social intent would be recognised as a SE, which will make it eligible to be registered or listed on the SSE.
  • 17 plausible criteria under SEBI’s ICDR Regulations, 2018 include serving to eradicate hunger, poverty, malnutrition, promoting education, employability, equality, and environmental sustainability among others
• Ineligibility:
  • Corporate foundations, political or religious organisations, professional or trade associations, infrastructure and housing companies (except affordable housing) would not be identified as SE
  • NPOs would be deemed ineligible if dependent on corporates for more than 50% of its funding.
• NPO Money Raising:
  • NPOs can raise money either through issuance of Zero Coupon Zero Principal (ZCZP) Instruments from private placement or public issue, or donations from mutual funds.
    • ZCZP bonds differ from conventional bonds in the sense that it entails zero coupon and no principal payment at maturity.
    • For ZCZP issuance, the minimum issue size is presently prescribed as Rs 1 crore and minimum application size for subscription at Rs 2 lakhs.
  • Also, Development Impact Bonds are available upon completion of a project and delivered on pre-agreed social metrics at pre-agreed costs/rates.
• FPSE Money Raising:
  • FPEs need not register with SSE before raising funds through SSE.
  • It can raise money through issue of equity shares or issuing equity shares to an Alternative Investment Fund including Social Impact Fund or issue of debt instruments.

UPSC Civil Services Examination Previous Year Question (PYQ)

Q. With reference to the Indian economy, consider the following statements: (2020)

1. ‘Commercial Paper’ is a short-term unsecured promissory note.
2. ‘Certificate of Deposit’ is a long-term instrument issued by the Reserve Bank of India to a corporation.
3. ‘Call Money’ is a short-term finance used for interbank transactions.
4. ‘Zero-Coupon Bonds’ are the interest bearing short-term bonds issued by the Scheduled Commercial Banks to corporations.

Which of the statements given above is/are correct?

(a) 1 and 2 only
(b) 4 only
(c) 1 and 3 only
(d) 2, 3 and 4 only

Ans: (c)

Exp:

• Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note and held in a dematerialized form through any of the depositories approved by and registered with SEBI. Hence, statement 1 is correct.
• Certificate of Deposit (CD) is a negotiable money market instrument and issued in dematerialised form or as a Usance Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period. CDs can be issued by (i) scheduled commercial banks excluding Regional Rural Banks (RRBs) and Local Area Banks (LABs); and (ii) select all-India Financial Institutions (FIs) that have been permitted by RBI to raise short-term resources within the umbrella limit fixed by RBI. Hence, statement 2 is not correct.
• Call money is a short-term, interest-paying loan from 1 to 14 days made by a financial institution to another financial institution. Hence, statement 3 is correct.
• A zero-coupon bond is a debt security that does not pay interest but instead trades at a deep discount, rendering a profit at maturity, when the bond is redeemed for its full face value. Hence, statement 4 is not correct.
• Therefore, option (c) is the correct answer.

Source: TH