The National Stock Exchange (NSE) was given in-principle approval by the Securities and Exchange Board of India (SEBI) on December 19 to set up a Social Stock Exchange (SSE), which will be a separate segment within the bourse.
The SSE is the actualisation of an idea first put forth by Union Finance Minister Nirmala Sitharaman in her budget speech for 2019-20. The idea underlying the creation of an SSE, as Sitharaman stated in that speech, was to “take the markets closer to the masses” and prioritise social welfare objectives related to inclusive growth and financial inclusion.
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The SSE will fall under the aegis of market regulator SEBI. Social enterprises and voluntary organisations looking to raise capital as equity, debt or units like a mutual fund will be able to list themselves on the new bourse.
A new security instrument, called ZCZP or Zero coupon Zero Principal, will be deployed by the NSE to help organisations raise funds in this segment. The new instrument can be publicly or privately issued by a Not for Profit (NPO) to raise funds, subject to the fact that the NPO complies with the eligibility criteria. Under existing regulations, the minimum issue size is Rs 1 crore and the minimum application size for subscription stands at Rs 2 lakh. Subscription to the ZCZP will be akin to a philanthropic donation.
What are the eligibility criteria for an NPO to list on the SSE?
The regulator has laid out comprehensive guidelines for non-profits to list themselves on the social exchange. As far as legal requirements are concerned, the non-profit must be registered and must additionally possess a registration certificate that is valid for the coming year from the date of seeking registration with the SSE. The entity must either be registered as a charitable trust under the Societies Registration Act, 1860, or under the Indian Trusts Act, 1882, or must be a company incorporated under Section 8 of the Indian Companies Act, 2013.
The NPO will also have to disclose its ownership and control. People running the non-profit will have to submit the governing document, which could be the memorandum of association or the articles of association or the trust deed or the bye-laws or the constitution of the entity. The NPO will also have to disclose if it is owned by the government or is private.
Further, the NPO will have to be at least three years old, must have annual spending in the previous year of at least Rs 50 lakh, and should have received funding of at least Rs 10 lakh over the previous financial year.
What are the disclosure requirements before raising funds through a ZCZP instrument?
SEBI has directed that the SSE, under the guidance of an SSE governing council, should lay down the structure of the draft fundraising document. The regulator has mandated that the document should contain disclosures on the vision of the organisation, its target segment, its strategy, governance, management, operations, financing, compliance, credibility, social impact and risks.
Any NPO that is eventually listed will also have to submit a statement on utilisation of funds to the SSE within 45 days of the end of the quarter. This disclosure falls under regulation 91F of the listing obligations and disclosure requirements regulations.
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