Markets regulator Sebi clears framework for social stock exchange

Markets regulator Sebi on Tuesday decided on a framework for the social stock exchange for fund raising by social enterprises.

The framework for the Social Stock Exchange (SSE) has been developed on the basis of the recommendations of a working group and technical group constituted by the regulator.

After the board meeting on Tuesday, Sebi Chairman Ajay Tyagi said that SSE will be a separate segment of the existing stock exchanges.

Social Enterprises (SEs) eligible to participate in the SSE should be entities -- Non-Profit Organisations (NPOs) and for-profit social enterprises -- having social intent and impact as their primary goal.

Also, such an intent should be demonstrated through its focus on eligible social objectives for the underserved or less privileged populations or regions.

The social enterprises will have to engage in a social activity out of the list of 15 broad activities approved by Sebi.

When asked about timeline for the SSE, Tyagi said that he can't specify the timeline for the exchange and will coordinate with government to take it ahead.

With regard to fund raising, Sebi said eligible NPOs may raise funds through equity, zero-coupon zero principal bonds, mutual funds, social impact funds, and development impact bonds.

NPOs desirous of raising funds on the SSE will required to be registered with the exchange.

The regulator said that social venture funds under Sebi's Alternative Investment Funds norms will be rechristened as social impact funds. Also, the corpus requirements for such funds will be reduced from Rs 20 crore to Rs 5 crore. Further, the reference to "muted returns" will be removed.

Sebi said it will make suitable amendments to its regulatory framework, towards mandating initial and continuous disclosures for social enterprises, covering aspects relating to governance, financial and social impact.

It, further, said that social audit will be mandated for SEs raising funds or registered on SSE. To begin with only reputed firms/ institutions having expertise in the area of social audit will be allowed to carry out social audits employing social auditors who have qualified the certification course conducted by NISM.

Further, a separate sustainability directorate under ICAI will function as an SRO for social auditors.

The regulator said it will engage with NABARD, SIDBI and stock exchanges towards institution of a capacity building fund, with a corpus of Rs 100 crore.

Operationalisation of the framework will require amendments to several norms and those will be taken up by Sebi, the regulator said.

In May, a Sebi panel suggested that corporate foundations, political and religious organisations, among other entities should not be allowed to be on the SSE.

The social stock exchange is a novel concept in India and such a bourse is meant to serve private and non-profit sector providers by channelling greater capital to them.

The idea of SSE was first floated by Finance Minister Nirmala Sitharaman in her Budget Speech 2019-20.