Parameters of SSE or, the Social Stock Exchange

Parameters of SSE or, the Social Stock Exchange

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March 02, 2023

Why is it in the news? - The Securities and Exchange Board of India (SEBI), India's market regulator, gave final approval to the National Stock Exchange of India to establish a Social Stock Exchange (SSE).

What exactly is a social stock exchange? - Social Enterprises would be able to use the SSE's mechanism to raise public funds as a separate segment of the existing stock exchange. It would act as a mode for ventures to look for finance for their social drives, get perceivability and give expanded straightforwardness about store preparation and usage. Only securities offered by For-Profit Social Enterprises (FPSEs) on the Main Board are available for retail investors to purchase. Securities issued by SEs can only be purchased by institutional and non-institutional investors in all other circumstances.

What about being eligible? - Social Intent: Any FPSE or non-profit organization that prioritizes social good would be considered a social enterprise. It will be eligible to be registered on the SSE if those recognized. Non-profit organizations that rely on corporations for more than 50% of their funding are ineligible.

How do non-profit organizations raise funds? - Zero Coupon Zero Principal (ZCZP): Non-profit organizations can raise funds through donations from mutual funds or the issuance of ZCZP instruments from private placement or public issue. In contrast to conventional bonds, ZCZP bonds have no coupon and no principal payment at maturity. For ZCZP issuance, the minimum issue size is currently Rs 1 crore, and the minimum subscription application size is Rs 2 lakhs. The non-profit organization could choose to register on the SSE but not use it to raise funds; however, they would be required to make necessary disclosures regarding the same.

Development Impact Bonds are another form of structured finance available to nonprofit organizations.

• A grant is given to the non-profit after a project is finished and it meets predetermined social metrics at predetermined costs and rates.

• Outcome Funders are the donors who make the grant after the social metrics are met.

• Because the above payment is made after the fact, the non-profits would also need to raise money to pay for their operations.

• This is done by a Risk Funder, who bears the risk of social metrics not being delivered in addition to facilitating pre-payment financing of operations.

• How do FPOs acquire funding? Before using SSE to raise funds, For-Profit Enterprises (FPEs) do not need to register with social stock exchanges. However, when raising through the SSE, it must adhere to all ICDR Regulations provisions. It can raise funds by issuing debt instruments or equity shares to an Alternative Investment Fund, such as the Social Impact Fund.

What revelations should be made? available to nonprofit organizations.

• Annual impact report: According to SEBI regulations, a Social Enterprise must submit a prescribed annual impact report.

• The report should be examined by a social review firm and must be submitted in no less than 90 days from the finish of the monetary year.

• Funds raised: On a quarterly basis, listed non-profits are specifically required to provide information about the funds they have raised by category.

Source: The Hindu