[Analysis] SEBI’s Social Stock Exchange Framework for NPO – Registration, Social Impact, et al.

Table of Contents

1. Introduction
2. Registration Requirements for Not-for-Profit Organizations (NPOs) in the Social Stock Exchange (SSE) Framework
3. SEBI introduces ‘Social Impact Assessment’
4. A Guide to Zero Coupon Zero Principal Instruments in NPO Public Issuance
5. Elements of the Fundraising Document
6. Other conditions relating to issuance of Zero Coupon Zero Principal Instruments
7. Record-Keeping and Procedural Norms for Zero Coupon Zero Principal Instruments
8. Conclusion

1. Introduction

Earlier, the SEBI, through its Circular No. SEBI/HO/CFD/PoD-1/P/CIR/2022/120 dated September 19, 2022, introduced a detailed framework for the Social Stock Exchange (SSE). Following public consultation feedback, the Board approved amendments to the SEBI (ICDR) Regulations, 2018, and the SEBI (LODR) Regulations, 2015.

Later, in a notification dated December 21, 2023, SEBI officially implemented amendments to the ICDR Regulations and LODR Regulations. Subsequently, through circular SEBI/HO/CFD/PoD-1/P/CIR/2023/196 dated December 28, 2023, SEBI has now officially notified the framework for the Social Stock Exchange (SSE). Key highlights of the circular are as follows:

2. Registration Requirements for Not-for-Profit Organizations (NPOs) in the Social Stock Exchange (SSE) Framework

The circular details the prerequisites for Not-for-Profit Organizations (NPOs) aiming to register with SSE. This involves providing a Registration Certificate under sections 12A/12AA/12AB/10(23C)/10(46) of the Income-tax Act, 1961, as well as possessing a valid 80G registration under the Income Tax Act, 1961, for entities registered under sections 12A/12AA/12AB of the Income-tax Act, 1961.

3. SEBI introduces ‘Social Impact Assessment’

A noteworthy addition emphasizing the importance of detailing past social impact as per the existing practice of NPOs. The past social impact should highlight trends in key metrics/parameters relevant to the NPO (as may be determined by the Exchanges) for which it seeks to raise funds on SSE, number of beneficiaries, cost per beneficiary and administrative overheads.

4. A Guide to Zero Coupon Zero Principal Instruments in NPO Public Issuance

The SEBI has detailed the procedure for the public issuance of Zero Coupon Zero Principal Instruments by NPOs. The procedure for public issuance of Zero Coupon Zero Principal Instruments by a not-for-profit organization, is as follows:

• The not for profit organization shall, through the lead manager(s), file the draft fund raising document with the Social Stock Exchange where it is registered along with the fees and an application seeking in-principle approval for listing of its Zero Coupon Zero Principal Instruments on the Social Stock Exchange.
• The draft fund raising document shall be made available on the website of Social Stock Exchange and the not for profit organization for a period of at least 21 days for public comments.
• The Social Stock Exchange shall provide its observation on the draft fund raising document to the not for profit organization within a time period of 30 days from the filing of the draft fund raising document or receipt of clarification.
• The not for profit organization shall incorporate the observations of the Social Stock Exchange in draft fund raising document and file the final fund raising document to Social Stock Exchange prior to opening the issue.

5. Elements of the Fundraising Document

The draft fundraising document and the final fundraising document must encompass all essential disclosures that are both truthful and sufficient to empower applicants to make well-informed decisions.

Furthermore, and without limiting the scope of the above provision, the draft fundraising document and the final fundraising document shall incorporate disclosures as specified by the Board periodically. It is noteworthy that the Social Stock Exchange retains the authority to prescribe additional disclosures for both the draft fundraising document and the final fundraising documents.

6. Other conditions relating to issuance of Zero Coupon Zero Principal Instruments

The Zero Coupon Zero Principal Instruments shall be issued in dematerialized form only. Further, the Zero Coupon Zero Principal Instruments shall not be transferable from the original subscriber/holder till the expiry of the tenure of the said instrument.

6.1 What will be the minimum issue and application ticket size

The minimum issue size shall be rupees 50 lakhs. Further, the minimum application size shall be rupees 10,000. Also, the minimum subscription required to be achieved shall be 75% of the funds proposed to be raised through issuance of Zero Coupon Zero Principal Instruments.

In case of any under subscription, the not for profit organization shall, in the fund raising document, provide details on the following:

1. Manner of raising balance capital in case of such under subscription between 75% and 100%;
2. Possible impact on achieving the social objective(s) in case such under subscription is not arranged

Provided that the funds shall be refunded in case the subscription is less than 75% of the issue size

7. Record-Keeping and Procedural Norms for Zero Coupon Zero Principal Instruments

The Social Stock Exchange shall maintain the details of the allotment pursuant to issuance of Zero Coupon Zero Principal Instruments by a not for profit organization.

Also, the Social Stock Exchange shall specify the additional norms in respect of issue procedure including on agreements with depositories, banks, etc., ASBA related matters, duration for public issuance, allocation methodology and any other ancillary matter related to issue procedure.

8. Conclusion

In conclusion, the introduction of the Social Stock Exchange (SSE) framework, as per SEBI’s circular and subsequent notifications, represents a significant milestone in shaping the landscape of fundraising for Not-for-Profit Organizations (NPOs). The comprehensive guidelines cover essential aspects, from registration requirements to the issuance procedure for Zero Coupon Zero Principal Instruments.

With an emphasis on truthful and sufficient disclosures, the SSE aims to foster informed decision-making. The framework, backed by record-keeping and procedural norms, reflects a commitment to ensuring the integrity and effectiveness of the SSE platform.