Zero coupon zero principle

Context: Capital markets regulator Sebi on Thursday came out with a procedure for public issuance of 'zero coupon zero principle' instruments by not-for-profit organisations (NPOs) and listing of such instruments on the Social Stock Exchange (SSE).

News:

• Instruments issued in dematerialized form are non-transferable.
• The minimum issue size for such instruments is set at Rs 50 lakh, with a minimum application size of Rs 10,000.
• A minimum subscription of 75% of the proposed funds must be achieved for the issuance.
• The process for listing on the SSE involves filing a draft fundraising document with the SSE through the lead manager, seeking in-principle approval for listing.
• SSE provides observations on the draft document within 30 days, and NPO incorporates these observations before opening the issue.
• If the subscription is less than 75% of the issue size, funds will be refunded.
• SSE is responsible for maintaining details of allotment for zero coupon and zero principal instruments issued by an NPO.
• SSE sets additional norms for the issue procedure, including agreements with depositories, banks, duration for public issuance, allocation methodology, and other ancillary matters.

'Zero Coupon Zero Principal' instruments

• They are financial tools utilized by non-profit organizations for fundraising.
• When these securities are issued, the funds raised are considered donations rather than loans.
• The issuing entity is not obligated to pay interest (zero coupon) or repay the principal amount (zero principal).
• Similar to other debt instruments, these securities have a specific time duration.
• The securities can be purchased by individuals or corporations through SSE when available.
• The Finance Ministry has categorized zero coupon zero principal instruments (ZCZP) as securities under the Securities Contracts (Regulation) Act, 1956.
• SEBI governs the rules and regulations pertaining to these instruments.
• The significance lies in enabling organizations and corporations to use their social responsibility funds more transparently and support non-profit organizations effectively.

SEBI

• It was established in 1988, is the regulatory authority for India's securities and commodities market, operating under the ownership of the Finance Ministry.
• Its primary objectives include safeguarding investors' interests and fostering the development of the securities market.
• SEBI gained autonomy and statutory status with the enactment of the SEBI Act in 1992.
• Functioning as a quasi-judicial and quasi-legislative body, SEBI possesses the authority to formulate regulations, conduct investigations, and impose penalties.
• The SEBI Board comprises a Chairman serving a 3-year term, along with various Full-time and Part-time members.
• NPOs, or non-profit organizations, are legal entities that operate for the public and societal benefit rather than for profit.

SSE

• Social Stock Exchanges(SSE), constitutes a distinct segment within the existing stock exchange structure.
• It serves as a platform for social enterprises to raise funds from the public through its designated mechanism.
• The proposal for establishing SSE was introduced by Finance Minister Nirmala Sitharaman in the 2019 budget speech.
• Eligibility for listing on SSE is open to both for-profit social businesses (FPSE) and non-profit organizations (NPO) that demonstrate a commitment to social causes.
• SEBI's Regulations of 2018 outline 17 reasonable criteria for qualification, including objectives related to education, employability, equality, environmental sustainability, and efforts to combat hunger, poverty, and malnutrition.