The near future would see the introduction of two new segments in the Indian capital markets as the Securities and Exchange Board of India (SEBI) has given its final go-ahead to Gold Exchange and Social Stock Exchange. Both were in the planning and discussion stage for long, and have finally got the regulatory nod. Here is all you need to know about Gold Exchange and Social Stock Exchange.
Gold Exchange
India is the second-largest consumer of gold globally -- first being China -- and the policymakers have been, for long, trying to create investment options for gold in digital form. Currently, derivative contracts in gold are available for trading on exchanges but there is no spot market for the precious yellow metal.
Gold Exchange has been planned to fill that void as participants will be able to trade in instruments called ‘Electronic Gold Receipt’ that will have all the characteristics of shares or securities in terms of trading, clearing and settlement. Any SEBI-registered stock exchange can provide a Gold Exchange platform.
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The Gold Exchange framework will have ‘Vault Managers’ – SEBI-regulated entities with a minimum net worth of Rs 50 crore – that will accept gold deposits, convert physical gold into EGRs and withdrawal of gold as well.
A discussion paper floated earlier by SEBI had proposed allowing retail investors apart from foreign portfolio investors (FPIs), banks, jewellers and bullion dealers to participate on the platform. It further proposed EGRs in various denominations like one kilogram, 100 grams and even five or 0 grams to attract more retail participation.
Simply put, physical gold can be converted into EGRs through Vault Managers. Thereafter, the EGRs can be traded on the Gold Exchange like any normal share. While EGRs can again be converted into physical gold through the Vault Managers, the detailed regulations might lay down a minimum quantity for reconversion as allowing even 1 or 5 grams of gold could pose challenges related to logistics and delivery.
Social Stock Exchange
A Social Stock Exchange will allow social enterprises to raise funds on a stock exchange platform that offers benefits like transparency and a well-regulated ecosystem.
According to SEBI, social enterprises can include both, not-for-profit organisations and for-profit enterprises that have a social intent and impact as their primary goals. Further, such enterprises will have to engage in any social activities out of the list of 15 broad eligible social activities approved by the regulator.
Further, the not-for-profit enterprises will be able to raise funds on the platform by way of equity, zero coupon zero principal bonds, social impact funds, mutual funds and developmental impact bonds. These enterprises will have to, however, first register with the Social Stock Exchange.
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Incidentally, social venture funds that have already registered with SEBI as Alternative Investment Funds (AIFs) will be recategorised as Social Impact Funds and their minimum corpus requirement for such funds would be reduced from the current Rs 20 crore to Rs 5 crore.
As part of its monitoring process to ensure that only genuine enterprises tap the segment, the capital market regulator has mandated a social audit as well for all social enterprises on the platform.
In June 2020, a SEBI working group created to lay down the framework for Social Stock Exchange had suggested the segment could help unlock funds from donors, philanthropic foundations and CSR spenders, in the form of zero coupon zero principal bonds, which can be listed on the platform.