SOCIAL STOCK EXCHANGE

1. Context

2. About Social Stock Exchange

• 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 mobilisation and utilisation.
• 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.

3. Eligibility

• Any non-profit organisation (NPO) or for-profit social enterprise (FPSEs) that establishes the primacy of social intent would be recognised as a social enterprise (SE), which will make it eligible to be registered or listed on the SSE.

• At least 67 per cent of their activities must be directed towards attaining the stated objective. 
• Corporate foundations, political or religious organisations or activities, professional or trade associations, and infrastructure and housing companies (except affordable housing) would not be identified as SE.

4. NPOs Raising Money

• 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.
• SEBI had earlier recognised that NPOs by their very nature have primacy of social impact and are nonrevenue generating.
• Thus, there was a need to provide NPOs direct access to the securities market for raising funds.
• ZCZP bonds differ from conventional bonds in the sense that it entails zero coupons and no principal payment at maturity.
• The latter provisions a fixed interest (or repayment) on the funds raised through varied contractual agreements, whereas ZCZP would not provide any such return instead promising a social return. 
• The NPO must be registered with the SSE for facilitating the issuance.
• The instrument must have a specific tenure and can only be issued for a specific project or activity that is to be completed within a specified duration as mentioned in the fundraising document (to be submitted to the SSE).

5. FPOs raise money

• For Profit Enterprises (FPEs) need not register with social stock exchanges before it raises funds through SSE.
• However, it must comply with all provisions of the ICDR Regulations when raising through the SSE.
• It can raise money through the issue of equality shares (on the main board, SME platform or innovators' growth platform of the stock exchange) or issuing equity shares to an Alternative Investment Fund including a Social Impact Fund or issue of debt instruments.

6. Disclosures need to be made

• 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.

For Prelims & Mains