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sebi: Sebi notifies social stock exchange framework

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Capital markets regulator Sebi has notified a framework for the social stock market to provide social enterprises with an additional means of raising funds. The Social Stock Exchange (SSE) framework was developed based on the recommendations of a working group and a technical group set up by the regulator.

Social stock exchange is a new concept in India and such a stock exchange is meant to serve the private and non-profit sectors by channeling more capital to them. The idea of ​​the SSE was first floated by Finance Minister Nirmala Sitharaman in her 2019-20 budget speech.

Under the new rules, SSE will be a separate segment from the existing exchanges, according to the three separate notices released by the Securities and Exchange Board of India (Sebi) on Monday.

Social enterprises (SEs) eligible to participate in the SSE will be entities – both non-profit organizations (NPOs) and for-profit social enterprises – with social intent and impact as their primary objective. Further, such intent should be demonstrated by its focus on eligible social goals for underserved or less privileged populations or regions.

Social enterprises will have to engage in one social activity among 16 major activities listed by the regulator. Eligible activities include the eradication of hunger, poverty, malnutrition and inequality; promote health care, support education, employability and livelihoods; empowerment of women and LGBTQIA+ communities for gender equality; and supporting social enterprise incubators.

Corporate foundations, political or religious organizations or activities, professional or business associations, infrastructure and housing companies, except affordable housing, will not qualify as a social enterprise.

Regarding fundraising, Sebi said eligible NPOs can raise funds through zero-coupon bonds and mutual funds, while for-profit social enterprises can raise capital through lending. issue of shares within the main board of directors, of an SME platform or of shares issued to an alternative investment fund, including social impact funds.

NPOs wishing to raise funds on the SSE will need to be registered with the stock exchange.

Regarding disclosures, a social enterprise, fundraising or registered on SSE, will be required to submit an “annual impact report” to such an exchange. The annual impact report will be audited by a social audit firm employing a social auditor.

In addition, social venture capital funds falling under Sebi’s alternative investment fund standards have been rebranded as social impact funds with the aim of making these funds an attractive means of investing in NPOs. Furthermore, corpus requirements for such funds have been reduced from Rs 20 crore to Rs 5 crore and the minimum value of investment by an individual investor in such funds will be Rs 2 lakh.

The grant amount that can be accepted by the fund from anyone has been reduced to Rs 10 lakh from Rs 25 lakh.

“A social impact fund or plans of a social impact fund launched exclusively for an NPO registered or listed on an SSE are authorized to deploy or invest 100% of the investable funds in the securities of NPOs registered or listed on an SSE “Says Sebi.

The notifications came after Sebi’s board approved a framework in this regard in September 2021.

To give these effects, the regulator has amended the rules governing alternative investment funds, the ICDR rules (Issue of Capital and Disclosure Requirements) and the LODR standards (Listing Obligations and Disclosure Requirements).