SEBI has vide circular dated September 19, 2022 laid out a detailed framework for Social Stock Exchange.
Earlier this year, Ministry of Finance, Government of India amended the Securities Contracts (Regulations) Act, 1956 to include Zero-Coupon Zero-Principle (ZCZP) Instruments as securities which can be listed on exchanges. (Regstreet Law Advisors earlier post dated July 17, 2022). Thereafter, SEBI introduced a regulatory framework to allow social enterprises (SE) to raise funds through the securities market and amended various regulations to set up a social stock exchange (SSE) (Regstreet Law Advisors earlier post dated July 27, 2022).
It laid out the following:
1. Minimum requirements to register with SSE: The minimum requirements to be met by a Not for Profit Organization (NPO) for registration with SSE including legal requirements and minimum fund flows. Interesting details to note are that the NPO is required to be registered for minimum of 3 years, must have spent at least Rs 50 lakh annually in the past financial year and should have received a funding of at least Rs 10 lakh in the past financial year.
2. Disclosure Requirements for raising funds: Details pertaining to the draft fund raising document/ final fund raising document which will be required to be disclosed by NPOs raising funds through the issuance of zero-coupon zero principal instruments. As part of this minimum requirement, NPOs will be required to disclose its past years financial statements, audited annual accounts, social impact as per parameters provided in the circular among other things.
3. Annual disclosures: Annual disclosure to be made within 60 days from end of Financial Year by NPOs covering various governance and financial aspects. This includes details of top 5 donors and top 5 programs (budget wise).
4. Annual Impact Report: SEs will have to provide duly audited Annual Impact Report (AIR) to SSE within 90 days from the end of Financial Year covering various qualitative and quantitative aspects of social impact generated by the entity.
5. Statement of utilisation of funds: Listed NPO shall submit statement of utilisation of funds to SSE within 45 days from the end of quarter.
The primary objective of such a platform is to harness the opportunity that the Indian markets offer, and channelize the funds to social enterprises. With the elaborate criterion laid by SEBI with regard to the SSE, it will be interesting to see how many social enterprises meet the standards, and whether the platform will be used to raise funds or merely as a directory.
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