Social Stock Exchange: A Brief Note

After a Working Group (WG) outlined the vision for SSEs in September 2019, SEBI constituted a Technical Group (TG) to recommend issues pertaining to the scope of work, eligibility criteria, and regulatory framework for social auditors. ?A separate notification for each of the three new rules was issued by the Securities and Exchange Board of India (SEBI). Amendements are done under:

SEBI (ICDR) Regulations, 2022

SEBI (LODR) Regulations, 2015

SEBI (AIF) Regulations, 2012

Some highlights are:

1.???A separate segment will be dedicated to SSE on SEBI

2.???SSE is only accessible to institutional and non-instituational investors.

3.???Eligibility criteria

A.??not-for-profit organisation (NPO)

NPO should have social intent and impact as its primary goals and it reports such impact. Social intents are defined as follows:

A.1 Shall be indulged in at least one of the?Sixteen (16)?defined activities. (Annexure attached)

A.2 Shall target underserved or less privileged population segments or regions recording lower performance in the development priorities of central or state governments.

A.3 Shall have at least 67% of its activities towards the target population.

?B.??for-profit social enterprise:?It means a company or body corporate operating for profit but having social intent and impact as their primary goal. ?

4. ?Registration

NPOs are required to be registered prior to raising funds through SSE and there are qualifying criterion for registration.

?5.???Instruments:

5.1 ?Zero coupon zero principal bonds:?It will have zero coupon rate and no principal amount shall be payable on maturity. These bonds would have a tenure equal to the duration of the project that is being funded.

5.2 Mutual funds:?An asset management company could offer closed-end mutual fund units to investors. The units could be redeemable in principal terms, but all of the returns could be channelled towards suitably chosen NPOs by the fund which acts as the intermediary.

6. Documents required for Fund Raising

The fund-raising document shall contain all material disclosures which are true and adequate to enable the applicants to make an informed decision. The details to be incorporated in the fund-raising document will be specified by SSE. Later SEBI shall specify the minimum disclosure requirement.

7. Disclosure

Annual disclosures are required by NPOs to the SSE on specified matters within 60 days from the end of the financial year or as subsequently specified by SEBI. These are, Annual impact report, which should be audited by social audit firms to the SSE in the format specified by SEBI. Report on funds raised, utilized & balance unutilized on a quarterly basis.

The unutilized amount shall be kept in a separate bank account.

8. Disclosure of events

• NPOs shall frame a policy for determination of materiality, duly approved by its board or management, which shall be disclosed on the SSE.
• The board and management of NPOs shall authorize one or more of its Key Managerial Personnel for the purpose of determining the materiality of an event and the contact details of such personnel shall also be disclosed to SEBI.
• NPOs shall disclose the event, and potential impact to the SSE within 7 days of any event that may have a material impact on the planned achievement of outputs or outcomes.
• On its official website, NPOs shall also disclose all such events.

9. A social Impact Fund (SIF) or schemes of SIF may also issue social units, with a corpus of at least Rs. 5 Crores.

10. The individual investor can invest a minimum of Rs. 2,00,000/- in an Alternative Investment Fund (AIF).

11. A social impact fund shall be permitted to invest 100% of the investable funds in the securities of registered NPOs.

12. At least 75% percent of the investable funds shall be invested in unlisted securities or partnership interests of social ventures.