EPFO EO/AO 2023 General Ability Test · Question 120 of 120

Correct — A, (a) A high standard corporate governance initiative. NSE Prime is a framework launched by the National Stock Exchange under which a listed company may voluntarily undertake to observe standards of corporate governance higher than those the regulations require of it. The design has three features worth holding. It is voluntary: a company chooses to sign up, and the ordinary regulatory floor continues to apply to every listed company whether it signs up or not. It is continuing: a company that joins must comply with the pre-defined norms on an ongoing basis, and the exchange monitors that compliance, so it is not a one-off certification. And it goes beyond governance in the narrow sense: alongside stricter governance norms the framework prescribes additional disclosure requirements, so that companies inside it produce higher-quality public information than the minimum. The purpose, as the exchange described it at launch, is to raise the bar on corporate governance in India, to give investors a way of identifying companies that have voluntarily accepted higher standards, to broaden the quality of the investor base in those companies, and to strengthen trust in the Indian capital markets. Press reports at the time described the eligibility norms as including a minimum public shareholding of 40 per cent, against the 25 per cent minimum public shareholding that the securities regulations require of a listed company, and a board of at least eight directors, against the smaller minimum that the listing regulations set. That construction is the key to the whole term. A framework of higher-than-regulatory standards adopted voluntarily and monitored by an exchange is a corporate governance initiative and nothing else. It creates no tax benefit, issues no security and confers no regulatory privilege, which is what disposes of the other three options. One caution about a term of this kind: a voluntary framework is a market signal, not a change in law. A company inside it is undertaking more than the rules require; a company outside it is not thereby in breach of anything.

• (b)Long-duration Sovereign Green Bonds — Sovereign green bonds are securities issued by the Government of India through the Reserve Bank, with the proceeds earmarked for projects that reduce the carbon intensity of the economy, and India began issuing them in 2022-23 under a framework adopted for the purpose. A stock exchange does not issue sovereign debt; it provides the platform on which securities are listed and traded. The option is placed to catch a candidate who associates the exchange's name with anything happening in the capital markets, and the discrimination to make is between the issuer of a security and the venue on which it trades.
• (c)Concessions and tax-holidays for hi-tech startup companies — Tax concessions for start-ups are the business of the Government and are granted through the Income-tax Act, for instance the deduction available to eligible start-ups recognised by the Department for Promotion of Industry and Internal Trade, subject to conditions on incorporation date, turnover and the nature of the business. A stock exchange has no power to grant a tax holiday to anyone. The option relies on a candidate remembering that exchanges do run platforms aimed at smaller and newer companies, which is true, but a listing platform is a place to raise capital and not a fiscal concession.
• (d)Special privileges for certain categories of Non-Banking Financial Institutions — Non-banking financial companies are regulated by the Reserve Bank of India, which in recent years has moved them onto a scale-based regulatory framework, effective from 1 October 2022, that sorts them into layers and applies progressively stricter requirements as an entity grows larger and more systemically important. That framework tightens obligations rather than granting privileges, and in any case it belongs to the central bank and not to an exchange. The option is worth reading carefully as an example of a distractor built from a real and current framework in an adjacent field, described in terms that reverse its actual effect.

Corporate governance in India is regulated principally by the Companies Act, 2013 and by the Securities and Exchange Board of India's Listing Obligations and Disclosure Requirements Regulations, 2015, which together fix the composition of boards, the constitution and powers of the audit, nomination and remuneration committees, the role of independent directors, the treatment of related party transactions and the disclosure obligations of a listed company. Those rules are a floor. NSE Prime is a voluntary framework layered above that floor: a listed company may undertake to meet stricter governance norms and to make additional disclosures on a continuing basis, and the exchange monitors compliance. The economic reasoning behind such a framework is that governance quality is hard for an outside investor to observe directly, so a company with genuinely high standards has no easy way to distinguish itself from one that merely meets the minimum. A monitored, voluntary commitment supplies that signal, and the intended payoff for a participating company is a better-quality investor base and a lower cost of capital. Frameworks of this kind exist in several markets, usually as a premium listing segment carrying stricter admission and continuing obligations. It is important to keep straight what such a framework is not: it does not replace the statutory and regulatory requirements, it does not create a new class of security, and it is enforced through the exchange's own contractual arrangements with the company rather than through statute.

Capital-market vocabulary appears regularly in the current-affairs block of the EO/AO General Ability Test, and this is the standard shape for it: a name from the financial pages with four institutionally distinct definitions attached. The item tests placement rather than detail, and the four options are drawn from four different regulators and instruments, an exchange framework, a sovereign debt instrument, a tax concession and a central bank's prudential regime. The habit rewarded is to ask, for any name in the news, which body is behind it and what kind of instrument it is, because that pair alone answers most questions of this form.

• NSE Prime is a voluntary corporate governance framework launched by the National Stock Exchange for its listed companies.
• It prescribes governance standards higher than those required by regulation, together with additional disclosure requirements.
• Companies that join must comply on an ongoing basis, and compliance is monitored by the exchange.
• Its stated purposes are to raise governance standards, to help investors identify companies that have accepted them, and to strengthen trust in the capital markets.
• Press reports at launch described the eligibility norms as including a minimum public shareholding of 40 per cent and a board of at least eight directors.
• The securities regulations require a minimum public shareholding of 25 per cent from a listed company.
• Statutory corporate governance in India rests on the Companies Act, 2013 and the SEBI Listing Obligations and Disclosure Requirements Regulations, 2015.
• The framework is contractual and voluntary; it does not replace regulatory obligations and creates no new class of security.
• Sovereign green bonds are issued by the Government through the Reserve Bank, and non-banking financial companies are regulated by the Reserve Bank under a scale-based framework effective from 1 October 2022.

• Associating an exchange's name with any capital-market instrument, including securities it does not issue.
• Assuming a voluntary framework changes the legal obligations of companies that stay outside it.
• Confusing a stricter prudential regime, which imposes obligations, with a grant of privileges.
• Attributing tax concessions to a market institution rather than to the Government.
• Treating a monitored voluntary undertaking as a mere certification given once.

Capital-market terms come to EO/AO papers as a 'denotes' or 'best describes' item like this one, or as a two-statement code item pairing a term with a claim about who regulates it. The examiner assembles distractors from adjacent fields, so a candidate who can name the body behind each option can usually eliminate three without knowing the term itself. Read the business pages for the pairing of name and institution, and keep the boundaries between the Government, the securities regulator, the central bank and the exchanges clearly in mind.

No directly related past PYQ was found.

• practice — not a real PYQ

  Which one of the following statements about NSE Prime is correct ?

  • (a)It is a mandatory framework applicable to all companies listed on the exchange
  • (b)It is a voluntary framework prescribing corporate governance standards higher than those required by regulation
  • (c)It is a category of Government securities listed on the exchange
  • (d)It is a tax concession available to newly listed companies

  Answer(b) It is a voluntary framework prescribing corporate governance standards higher than those required by regulation

• practice — not a real PYQ

  The minimum public shareholding requirement applicable to a listed company in India is :

  • (a)10 per cent
  • (b)25 per cent
  • (c)40 per cent
  • (d)51 per cent

  Answer(b) 25 per cent