Imagine you are interested in investing in the stock market. However, when you read tales about firms like Yes Bank or Jet Airways where investors lost - lots of money owing to terrible management, you begin to wonder things like how do such well-known businesses fail and how may mismanagement occur in publicly traded companies?
The most logical solution to the issue of how these risks might be reduced is excellent corporate governance. The better the corporate governance, the more trust an investor has in that organisation. To address this issue, the National Stock Exchange introduced NSE Prime.
What is NSE Prime?
NSE Prime is a framework for listed firms that specifies greater corporate governance requirements beyond those mandated by legislation. Additional disclosure criteria have also been imposed in order to ensure that public information is of better quality and more transparent.
Listed firms who willingly opt to participate in NSE Prime will be required to adhere to predefined standards on a regular basis, which the NSE will monitor. This project would increase the bar for corporate governance standards in India, helping businesses to recognize firms that have willingly committed to greater corporate governance standards. It would help improve the quality of listed company investors and enhance trust in India's capital markets.
"Improved corporate governance standards, greater transparency and better disclosures will help companies build stronger and sustainable businesses that can stand the test of time. This will not only help companies and investors but also accelerate market development at large," Vikram Limaye, MD and CEO of NSE stated.
Assume two comparable firms, A and B, are listed on the NSE. You are an investor wanting to purchase stock in a reputable firm. A abides by all of the norms and restrictions imposed by SEBI. However, B voluntarily adheres to even higher standards of rules and regulations than those imposed by SEBI in order to make the company transparent and robust. Naturally, B appears to be the better option.
According to experts it is one of the finest investments a company can make since it decreases the capital requirements and makes the company more relevant. Recognizing such enterprises that establish higher standards for themselves helps to enhance the general business climate.