SOCIAL STOCK EXCHANGE

SOCIAL STOCK EXCHANGE AND ZERO COUPON ZERO PRINCIPAL INSTRUMENTS

AN OVERVIEW OF SEBI (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS)

REGULATIONS, 2018

SEBI (Issue of Capital and Disclosure Requirements) (Third Amendment) Regulations, 2022

(Notification No. SEBI/LAD-NRO/GN/2022/90 dated July 25, 2022)

Meaning of Social Stock Exchange:

Social Stock Exchange means a separate segment of a recognized stock exchange having

nationwide trading terminals permitted to register Not for Profit Organizations and / or list the

securities issued by Not for Profit Organizations in accordance with provisions of these

regulations.

Applicability of the Chapter:

The provisions of the above mentioned Chapter shall apply to

· a Not for Profit Organization seeking to only get registered with a Social Stock Exchange;

· a Not for Profit Organization seeking to get registered and raise funds through a Social

Stock Exchange; and

· a For Profit Social Enterprise seeking to be identified as a Social Enterprise under the

provisions of this Chapter.

Access to Social Stock Exchange:

A Social Stock Exchange shall be accessible only to institutional investors and non-institutional investors. However, SEBI may permit other class(es) of investors, as it deems fit, for the purpose of accessing Social Stock Exchange.

Social Stock Exchange Governing Council:

Every Social Stock Exchange shall constitute a Social Stock Exchange Governing Council to have an oversight on its functioning. The composition and terms of reference for such Governing Council shall be specified by the SEBI from time to time

Eligibility conditions for being identified as a Social Enterprise:

· A Not for Profit Organization or a For Profit Social Enterprise, to be identified as a Social Enterprise, shall establish primacy of its social intent.

· In order to establish the primacy of its social intent, such Social Enterprise shall meet the

prescribed eligibility criteria and shall be indulged in at least one of the activities such as

eradicating hunger, poverty, malnutrition and inequality; promoting health care

including mental healthcare, sanitation and making available safe drinking water;

promoting education, employability and livelihoods; protection of national heritage, art

and culture etc.

Requirements relating to registration for a Not for Profit Organization:

· A Not for Profit Organization shall mandatorily seek registration with a Social Stock Exchange before it raises funds through a Social Stock Exchange. Provided that a Not for Profit Organization may choose to register on a Social Stock Exchange and not raise funds through it.

· The minimum requirements for registration of a Not for Profit Organization on a Social Stock Exchange shall be specified by the SEBI from time to time.

· The Social Stock Exchange may specify the eligibility requirements for registration of a Not for Profit Organization in addition to the minimum requirements specified by the SEBI.

Fund raising by Social Enterprises:

A Not for Profit Organization may raise funds on a Social Stock Exchange through:

· issuance of Zero Coupon Zero Principal Instruments to institutional investors and/or non institutional investors in accordance with the applicable provisions of this Chapter;

· donations through Mutual Fund schemes as specified by the SEBI;

· any other means as specified by the SEBI from time to time.

A For Profit Social Enterprise may raise funds through:

· issuance of equity shares on the main board, SME platform or innovators growth platform or equity shares issued to an Alternative Investment Fund including a Social Impact Fund;

· issuance of debt securities;

· any other means as specified by the SEBI from time to time

Framework on Social Stock Exchange (“SSE”)

SEBI vide its circular No. SEBI/HO/CFD/PoD-1/P/ CIR/2022/120 dated September 19, 2022 has issued a detailed framework for social stock exchange, specifying minimum requirements for a Not-for-Profit Organisation (NPO) for registering with the Stock exchange and disclosure requirements. This circular has specified minimum requirements to be met by a NPO for registration with SSE, disclosure requirement for NPOs raising funds through the issuance of zero coupon zero principal instruments and put in place annual disclosure requirements that needs to be made by NPOs on SSE.

Governing Council for Social Stock Exchange

Every SSE is required to constitute a Social Stock Exchange Governing Council (SGC) which will have an oversight on the functioning of the Board. The SGC shall comprise of individuals with relevant experience who can contribute to the development of the Social Stock Exchange. SGC will have a minimum of 7 members having representation from non-profit organisations, Stock exchange, Social impact investors, Philanthropic and social sectors, Information Repositories, Social Audit Profession and Capacity Building Fund. The same shall be supported by the administrative staff from SSE. The SGC is expected to provide oversight and guidance to facilitate the smooth functioning of the operations of the Social Stock Exchange, with regard to registration, fund raising and disclosures by Social Enterprises.

Zero Coupon Zero Principal Instruments

SEBI vide its notification dated July 25, 2022, has amended the provisions of SEBI (Listing

Obligations and Disclosure Requirements) Regulations, 2015, which shall come into force on the date of their publication in the Official Gazette.

Vide this notification SEBI has inserted “Zero Coupon Zero Principal Instruments” in the

definition of Designated Securities and notified a new chapter IX-A which deals with Obligations of Social Enterprises.

“Zero coupon zero principal instrument” means an instrument issued by a Not for Profit

Organisation which shall be registered with Social Stock Exchange segment of a recognised Stock Exchange in accordance with the regulations made by the Securities and Exchange Board of India.

Applicability:

The provisions of the Chapter IX-A shall apply to a “For Profit Social Enterprise” whose

designated securities are listed on the applicable segment of the Stock Exchange(s) and a “Not for Profit Organizations” that is registered on the Social Stock Exchange(s).

Disclosures by a For Profit Social Enterprise and Not for Profit Organization:

A For Profit Social Enterprise whose designated securities are listed on the Stock Exchange(s) shall comply with the disclosure requirements contained in these regulations with respect to issuers whose specified securities are listed on the Main Board or the SME Exchange or the Innovators Growth Platform, as the case may be.

A Not for Profit Organization registered on the Social Stock Exchange(s), including a Not for

Profit Organization whose designated securities are listed on the Social Stock Exchange(s), shall be required to make annual disclosures to the Social Stock Exchange on matters specified by the SEBI, within 60 days from the end of the financial year or within such period as may be specified by the SEBI.

Intimations and disclosures by Social Enterprise of events or information to Social Stock

Exchange(s) or Stock Exchange(s):

· A Social Enterprise whose designated securities are listed on the Social Stock Exchange(s) or the Stock Exchange(s), as the case may be, shall frame a policy for determination of materiality, duly approved by its board or management, as the case may be, which shall be disclosed on the Social Stock Exchange(s) or the Stock Exchange(s).

· The board and management of the Social Enterprise shall authorize one or more of its Key Managerial Personnel for the purpose of determining materiality of an event or information and for the purpose of making disclosures to the Social Stock Exchange(s) or the Stock Exchange(s), as the case may be, under this regulation and the contact details of such personnel shall also be disclosed to the Social Stock Exchange(s) or the Stock Exchange(s).

· A Social Enterprise whose designated securities are listed on the Social Stock Exchange(s) or the Stock Exchange(s), as the case may be, shall disclose to the Social Stock Exchange(s) or the Stock Exchange(s) where it is registered or has listed its specified securities, as the case may be, any event that may have a material impact on the planned achievement of outputs or outcomes.

· The disclosure shall be made as soon as reasonably possible but not later than seven days or within such period as may be specified by the Board, from the occurrence of the event and shall comprise details of the event including the potential impact of the event and the steps being taken by the Social Enterprise to address the same.

· The Social Enterprise shall provide updates on a regular basis along with relevant

explanations in respect of the disclosures required in sub-regulation (3) till the time the

concerned event remains material.

· The Social Enterprise shall provide specific and adequate reply to all queries raised by the Social Stock Exchange(s) or the Stock Exchange(s), as the case may be, with respect to any events or information. However, the Social Stock Exchange(s) or the Stock Exchange(s), as the case may be, shall disseminate the information and clarification as soon as reasonably practicable.

· The Social Enterprise may suo moto confirm or deny any reported event or information to Social Stock Exchange(s) or the Stock Exchange(s), as the case may be.

· The Social Enterprise shall disclose on its website all such events or information which

have been disclosed to the Social Stock Exchange(s) or the Stock Exchange(s), as the case may be, under this regulation.

Disclosures by a Social Enterprise in respect of social impact:

A Social Enterprise, which is either registered with or has raised funds through a Social Stock

Exchange or a Stock Exchange, as the case may be, shall be required to submit an annual impact report to the Social Stock Exchange or the Stock Exchange in the format specified by the SEBI from time to time. The annual impact report shall be audited by a Social Audit Firm employing Social Auditor. The Social Stock Exchange(s) may specify parameters, in addition to those specified by the SEBI, which shall be required to be disclosed by a Social Enterprise on an annual basis.

Statement of utilisation of funds:

A listed Not for Profit Organization shall submit to the Social Stock Exchange(s) the following

statement in respect of utilisation of the funds raised, on a quarterly basis:-

(a) category-wise amount of monies raised;

(b) category-wise amount of monies utilised;

(c) balance amount remaining unutilised.

The unutilised amount shall be kept in a separate bank account and shall not be co-mingled with other funds. The statement required shall be given till the time the issue proceeds have been fully utilised or the purpose for which they were raised, has been achieved