Explained| Social Stock Exchange (SSE)

Context

Recently, the National Stock Exchange of India received the final approval from the markets regulator Securities and Exchange Board of India (SEBI) to set up a Social Stock Exchange (SSE).

• It was proposed in the 2019 Union Budget to initiate steps for creating a stock exchange under the market regulator’s ambit.

Probable Question

How does Social Stock Exchange function? How will NPOs and FPOs raise funds through this exchange? (250 words, 15 marks)

About the Social Stock Exchange (SSE)

• The SSE would function as a separate segment within the existing stock exchange and help social enterprises raise funds from the public through its mechanism. 
• It would serve as a medium for enterprises to seek finance for their social initiatives, acquire visibility and provide increased transparency about fund mobilization and utilization. 
• Retail investors can only invest in securities offered by for-profit social enterprises (SEs) under the Main Board. In all other cases, only institutional investors and non-institutional investors can invest in securities issued by SEs.

Eligibility to be registered on the SSE

• Any Non-profit organization (NPO) or for-profit social enterprise (FPSE) that establishes the primacy of social intent will be registered or listed as a social enterprise (SE) on the SSE.
• According to the 17 plausible criteria listed in Regulation 292E of SEBI's ICDR (Issue of Capital and Disclosure Requirements) Regulations, 2018, businesses must be working to eradicate hunger, poverty, malnutrition, and inequality; to promote education, employability, and equality among other things. 
• At least 67% of their activities must be directed towards attaining the stated objective, in the immediately preceding three-year period. 

Also Read: What is SEBI's New Account Settlement System?

Ineligibility to be registered on the SSE

• Corporate foundations, political or religious organizations or activities, professional or trade associations, infrastructure, and housing companies (except affordable housing) would not be identified as SE.
• Additionally, NPOs would be deemed ineligible should they be dependent on corporates for more than 50% of their funding.

NPOs Money raising

• NPOs can raise money either through the issuance of Zero Coupon Zero Principal (ZCZP) Instruments from private placement or public issue, or donations from mutual funds.
  • ZCZP bonds differ from conventional bonds in the sense that it entails zero coupons and no principal payment at maturity. 
• It is mandatory that the NPO is registered with the SSE for facilitating the issuance. 
• The minimum issue size is presently prescribed as Rs 1 crore and the minimum application size for subscription at Rs 2 lakhs for ZCZP issuance.
• The NPO may choose to register on the SSE and not raise funds through it but via other means. However, they would have to make necessary disclosures about the same.
• Another structured finance product available for NPOs is the Development Impact Bond. 

FPOs money raising

• It is not necessary for For-Profit Enterprises (FPEs) to register with social stock exchanges before raising money through SSE. 
• It must, however, adhere to all ICDR Regulations and requirements. 
• It may issue equity shares on the main board, the SME platform, or the innovator's growth platform of the stock exchange, or it may issue equity shares to an alternative investment fund, such as the Social Impact Fund, or it may issue debt instruments to raise money.

Disclosures by Social Enterprise

• SEBI’s regulations state that a social enterprise should submit an annual impact report in a prescribed format. 
• The report must be audited by a social audit firm and has to be submitted within 90 days from the end of the financial year.
• Listed NPOs, on a quarterly basis, are specifically required to furnish details about the money they have raised category-wise, how they have been utilized, and the unutilized balance amount. 
• The latter needs to be furbished until the proceeds are fully utilized or the purpose has been achieved.

News Source: The Hindu

https://www.thehindu.com/business/Economy/explained-combining-social-welfare-and-capital-markets-through-sse/article66569251.ece

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