Social Stock Exchange: SEBI Notifies Regulatory Framework

Moneylife Digital Team 30 July 2022

Market regulator Securities and Exchange Board of India (SEBI) has notified a framework for the social stock exchange (SSE) for providing social enterprises (SEs) an additional avenue to raise funds. Social enterprises include registered charitable trusts, societies and a company incorporated under Section 8 of the Companies Act, 2013.

The market regulator has issued SEBI (Issue of Capital and Disclosure Requirements) Third Amendment Regulations, 2022 to amend the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. The amendment inserts Chapter X-A for dealing with SSE. In her Budget speech in July 2019, finance minister (FM) Nirmala Sitharaman had proposed creating an SSE.

According to the framework, a not-for-profit organisation needs to mandatorily seek registration with an SSE before it raises funds through the Exchange. The not-for-profit organisation can register on the SSE but may not raise funds through it.

The market regulator stipulated that an SE is either a not-for-profit organisation or a for-profit SE that meets the eligibility criteria of establishing primacy of its social intent, being indulged in eradicating hunger, poverty, malnutrition and inequality, promoting healthcare including mental healthcare, sanitation and making available safe drinking water, promoting education, employability and livelihoods.

In September last year, the board of SEBI had approved creation of SSE, under the regulatory ambit of SEBI, for fund raising by SEs. According to SEBI, social enterprises will have to engage in a social activity out of the list of 15 broad eligible social activities approved by the board. Eligible non-profit organisations (NPOs) may raise funds through equity, zero coupon zero principal (ZCZP) bonds, mutual funds, social impact funds and development impact bonds.

For-profit SEs can raise funds through equity shares on the main board, SME platform or innovators growth platform or equity shares issued to an alternative investment fund (AIF) including a social impact fund and through issuance of debt securities.

"Securities issued by for profit SE shall be listed and traded under the applicable segment of the stock exchange with an identifier stating that the scrip is that of a for profit SE and such for profit SE shall meet the eligibility criteria or the main board, SME Platform or innovators growth platform, as applicable," SEBI says.

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