Roadmap for Public Issuance of ‘Zero Coupon Zero Principle’ Instruments by NPOs

What’s in today’s article?

• Why in News?
• What is the Social Stock Exchange (SSE)?
• What are Zero Coupon Zero Principal (ZCZP) Instruments?
• Roadmap for Public Issuance of ZCZP Instruments by NPOs

Why in News?

• The SEBI unveiled a roadmap 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).

What is the Social Stock Exchange (SSE)?

• SSE is a separate segment of the existing Stock Exchange that can help Social Enterprise(s) to raise funds from the public through the stock exchange mechanism.
• SSE will act as a medium between Social Enterprises and fund providers and that can help them to select those entities that are creating measurable social impact and reporting such impact.
• Certain types of Social Enterprises i.e Not-for-profit organisations (NPOs) that meet the registration criteria can register on SSE and undertake to make continuous disclosures on their social impact.
  • Such NPOs may or may not choose to raise funds through SSE, however, would continue to make disclosures including on social impact to stock exchanges.
  • A NPO after registering with SSE may raise funds on SSE through

■ Issuance of Zero Coupon Zero Principal Instruments [through private placement or public issuance

■ Donations through Mutual Fund Schemes [as shall be specified by SEBI]

■ Development Impact Bonds

■ Any other means that SEBI may specify in future

What are Zero Coupon Zero Principal (ZCZP) Instruments?

• These instruments are not stocks or bonds but instruments for donating money to the NPOs listed in the SSE.
• As the name indicates, ZCZP neither offers interest nor returns the principal.
• As it is a donation to the entity, not a loan or investment, the money will not be returned to the donor.
• In 2022, the government declared ‘zero coupon zero principal instruments’ as securities.

Roadmap for Public Issuance of ZCZP Instruments by NPOs:

• According to the Securities and Exchange Board of India (SEBI), such instruments will be issued in dematerialised form only, and are not transferable.
• The minimum issue size has been set at Rs 50 lakh, the minimum application size at Rs 10,000 and the minimum subscription required to be achieved will be 75% of the funds proposed to be raised through the issuance of such instruments.
• An NPO, through the lead manager, is required to file the draft fundraising document with the SSE and an application seeking in-principle approval for listing the instrument on the SSE.
• The SSE will provide its observation on such documents to the NPO within 30 days from the filing of the papers or receipt of clarification, if any, sought by the exchange from the NPO.
• NPO will incorporate the observations of the SSE in a draft document and file the final papers to the SSE prior to opening the issue.
• The SSE will have to specify the details to be incorporated in the fundraising document.

Q1) What is the Securities and Exchange Board of India (SEBI)?

SEBI is the regulatory body for securities and commodity markets in India under the administrative domain of the Ministry of Finance within the Government of India.

Q 2) What is a demat account?

A demat account is an Indian term for a dematerialised account that holds financial securities digitally and to trade shares in the share market.

Source: Sebi unveils norms for zero coupon instruments by NPOs