By the SEBI (Issuance of Capital and Disclosure Requirements) (Third Amendment) Regulations, 2022, SEBI establishes a Chapter on Social Stock Exchange.

The SEBI (Issue of Capital and Disclosure Requirements) Third Amendment) Regulations, 2022, announced by the Securities and Exchange Board of India on July 25, 2022, update the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.

A new section X-A addressing the social stock exchange has been proposed in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Third Amendment) Regulations, 2022, which were issued on July 25, 2022.

The guidelines in this Chapter shall apply to:

(a) a Not for Profit Organization seeking only registration with a Social Stock Exchange;

(b) a Not for Profit Organization seeking registration and fundraising through a Social Stock Exchange; and

© a For-Profit Social Enterprise seeking to be recognized as a Social Enterprise under the guidelines in this Chapter.

The term “Social Stock Exchange” refers to a section of a recognized stock exchange with national trading terminals that are allowed to register not-for-profit organizations and list the securities they issue in line with the rules set out in these laws.

Only institutional and non-institutional investors will have access to the social stock exchange: With the proviso that the Board may approve further classes of investors to access the Social Stock Exchange as it sees suitable.

Each Social Stock Exchange must establish a Social Stock Exchange Governing Council to oversee its operations. The Board will occasionally specify the Governing Council’s membership and scope of authority.

Before raising money through a social stock exchange, Not for Profit Organizations must register there. However, a Not for Profit Organization may elect to register on a social stock exchange without raising money through it. The Board will occasionally specify the minimal conditions for registration of a Not for Profit Organization on a Social Stock Exchange.

The modification adds a Chapter X-A addressing the Social Stock Exchange (or “SSE”).

Key Points:

• Applicability:
• To an organization that is not for profit and wants to register and generate money through an SSE.
• To a non-profit organization looking to register and generate money through an SSE.
• a For-Profit Social Enterprise that is attempting to qualify for this Chapter’s definition of a Social Enterprise.
• Only institutional and non-institutional investors will have access to SSE.
• A Social Stock Exchange Governing Council will be established for each SSE to oversee operations.
• This Chapter also covers the requirements for being classified as a social enterprise.
• Before it raises money through an SSE, a Not-for-Profit Organization must apply for SSE registration.
• Other elements discussed in this Chapter include:
• Raising money through a social enterprise; being ineligible to raise money; issuing zero-coupon principal instruments; being qualified to issue zero-coupon principal instruments;
• Procedure for a Not-for-Profit Organization’s private issuing of Zero Coupon Zero Principal Instruments; Procedure for a Not-for-Profit Organization’s public issuance of Zero Coupon Zero Principal Instruments;
• the information in the fundraising paper;
• considered under the 1957 Securities Contracts (Regulation) Rules;
• Removal of Zero Coupon Zero Principal Instruments from the Social Stock Exchange’s list of securities.

A framework for the social stock exchange (SSE) has been made public by the market regulator, Securities and Exchange Board of India (SEBI), giving social enterprises (SEs) another way to raise money. Registered charity trusts, organizations, and businesses formed under Section 8 of the 2013 Companies Act are examples of social enterprises.

To update the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, the market regulator released the SEBI (Issue of Capital and Disclosure Requirements) Third Amendment Regulations, 2022. Nirmala Sitharaman, the finance minister (FM), suggested forming an SSE in her Budget address in July 2019. To address SSE, the amendment adds Chapter X-A.

Before raising money through the Exchange, a not-for-profit organization must apply for registration with an SSE. The non-profit organization may register on the SSE, but it is not permitted to do fundraising there.

The market regulator mandated that a SE must be either a not-for-profit organization or a for-profit SE that satisfies the eligibility requirements of establishing the importance of its social intent, engaging in achieving food security, deprivation, undernourishment, and injustice, helping to promote health services including mental health programs, hygiene and making it available clean water, improving the quality of education, job prospects, and subsistence.

FundraisingFundraising options available to eligible non-profit organizations (NPOs) include equities, mutual funds, social impact funds, and bonds with a zero coupon and zero principal (ZCZP). The development of SSE, a fundraising platform for SEs that falls under SEBI’s regulatory purview, was authorized by the Board of SEBI in September of last year. SEBI states that social businesses must take part in one of the board-approved lists of 15 broad, acceptable social activities.

For-profit SEs can raise capital by issuing debt instruments, equity shares on the main Board, SME platforms, innovation growth platforms, and equity shares sold to alternative investment funds (AIFs), such as social impact funds, and equity shares on the main Board.

According to SEBI, “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 requirements for the main board, SME Platform, or innovators growth platform, as applicable.”

Conclusion

These regulations may be referred to as the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Third Amendment) Regulations, 2022. On July 25, 2022, the Securities and Exchange Board of India (SEBI) further amended the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018.

• They take effect the day after they are published in the Official Gazette.
• “CHAPTER X-A SOCIAL STOCK EXCHANGE” must be put after Chapter X and before Chapter XI of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018.

What is an SME IPO?

SME IPOs are intended to raise cash for a small and medium business firm, just like any other company issues an IPO to raise money. SME IPOs have smaller issue sizes than those of conventional firms since SMEs are significantly smaller than other businesses. After their IPO, SME enterprises are not listed on the Bombay Stock Exchange or the National Stock Exchange due to the size of the business.

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Startups and the ecosystem at large benefit greatly from SME IPOs. Although they are still in their infancy, the rising popularity and advantages should make this a dependable method of generating money for small businesses.

These listings now have a small market valuation and weight, but as India’s startup ecosystem develops, these metrics will only increase.

In addition to the obvious advantages for entrepreneurs, SME IPOs give investors access to early-stage prospects that have traditionally been the domain of venture capitalists (VCs) and financial institutions. Despite the dangers, ordinary investors benefit greatly from the endless development opportunities.