The Securities and Exchange Board of India (‘SEBI’) has by way of the SEBI (Issue of Capital and Disclosure Requirements) (Third Amendment) Regulations, 2022 (‘Third Amendment Regulations’) inserted a separate Chapter X-A (‘Chapter X-A’) in the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, which specifically deals with establishment, framework and functioning of social stock exchanges. The key provisions of Chapter X-A are summarised below:
|Ambit||Establishment of social stock exchanges (‘SSEs’), being a separate segment of recognised stock exchanges having nationwide trading terminals permitted to register and/or list the securities issued by not for profit organisations (‘NPOs’).|
Identification of social enterprise (‘Social Enterprise’), i.e. either an NPO or a for-profit social enterprise (‘FPSE’) that meets the eligibility criteria specified in Chapter X-A.
An NPO has been defined as a Social Enterprise which is any of the following entities: (i) a charitable trust registered under the Indian Trusts Act, 1882 or any other relevant State public trust statute; (ii) a charitable society registered under the Societies Registration Act, 1860; (iii) a company incorporated under Section 8 of the Companies Act, 2013; or (iv) any other entity specified by SEBI.
An FPSE has been defined as a company or a body corporate operating for profit, which is a Social Enterprise and does not include a company incorporated under Section 8 of the Companies Act, 2013.
Following entities will not be eligible to be identified as a Social Enterprise:
|Applicability and Accessibility||Chapter X-A applies to:|
SSEs will be accessible to:
|Eligibility||Conditions for NPOs or FPSEs to be identified as Social Enterprise – establishing primacy of social intent, which is based on the following eligibility criteria:|
a. Indulge in at least one of the following activities:
b. Target underserved or less privileged population segments or regions recording lower performance in the development priorities of Central or State Governments.
c. Have at least 67% of its activities, qualifying as eligible activities to the target population, to be established through one or more of the following:
|A Social Enterprise may raise funds through the following means:|
|Termination of Listing of ZCZP from SSE||Upon the occurrence of any of the following events:|
Corresponding changes have been made to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and the Securities Contracts (Regulation) Act, 1956, to give effect to the amendments promulgated through the Third Amendment Regulations.
On September 19, 2022, SEBI issued a Circular to supplement the framework set up by way of the Third Amendment Regulations and set up a detailed framework for SSEs. This Circular provided (i) the minimum requirements to be met by NPOs desirous of getting registered with SSEs; and (ii) the minimum initial disclosure requirements to be made by NPOs for raising funds through issuance of ZCZPs.
The Third Amendment Regulations, read with the SEBI Circular dated September 19, 2022, have specified a primary framework for establishment and governance of SSEs. However, there are several areas where the SSE framework requires further clarity, including in relation to (i) timelines for setting up of an SSE and notification of rules, guidelines or bye-laws for its day to day functioning; (ii) procedure and mechanism of fund raising by NPOs; (iii) procedure and minimum information/ disclosure requirements for registration of NPOs with SSEs and identification of FPSEs as Social Enterprises; (iv) identification of key intermediaries who will facilitate registration and fund raising on an SSE; (v) detailed disclosure requirements to be made by NPOs in a fund raising document; and (vi) composition and terms of reference of a Social Stock Exchange Governing Council. Unless further clarity is received on the above, the framework for SSEs may be construed to be ambiguous and pose challenges.