Introduction
The Securities and Exchange Board of India (SEBI) has consistently aimed to foster sustainable and accountable practices in the Indian financial markets. In line with this vision, SEBI introduced the Social Stock Exchange (SSE) framework through circular SEBI/HO/CFD/PoD-1/P/CIR/2022/120 on September 19, 2022. This initiative aimed to provide a platform where social enterprises and Not for Profit Organizations (NPOs) could raise capital in a transparent manner to fund their social impact initiatives.
Building upon the initial framework, SEBI has issued subsequent amendments and guidelines to strengthen the SSE, ensuring stringent criteria for NPOs, introducing innovative financial instruments, and enhancing disclosure requirements to promote transparency and accountability in the SSE ecosystem.
The key amendments included:
1. Stringent Criteria for NPOs: SEBI outlined stricter criteria for NPOs seeking registration on SSE; including requirements such as valid registration certificates under the Income-tax Act, 1961, for at least 12 months, and disclosure of pending notices or scrutiny cases from regulatory authorities.
2. Introduction of Zero Coupon Zero Principal Instruments: . These instruments, issued in dematerialized form only, having specific conditions regarding transferability, issue size, and minimum subscription requirements, has been introduced by SEBI to facilitate fundraising by NPOs.
3. Enhanced Disclosure Requirements: The circular mandated comprehensive disclosures in fundraising documents, ensuring transparency about the utilization of funds and the social impact achieved. It also specified additional norms for the issuance procedure to streamline fundraising activities on SSE.
Timelines for Annual Disclosures and SRO Expansion
In subsequent circulars issued on May 27, 2024:
SEBI/HO/CFD/PoD-1/P/CIR/2024/0059 required NPOs registered on SSE to submit annual disclosures by October 31, 2024; detailing compliance with SSE regulations and social impact metrics.
SEBI/HO/CFD/PoD-1/P/CIR/2024/0060 expanded the role of Self-Regulatory Organizations (SROs) for Social Impact Assessors, such as ICMAI Social Auditors Organization and ICSI Institute of Social Auditors, in certifying assessors involved in evaluating social impact metrics for SSE participants.
Conclusion
These SEBI circulars underscore its commitment to promoting transparency, accountability, and sustainable practices in the SSE ecosystem. By enhancing regulatory oversight, introducing new financial instruments, and mandating stringent disclosure norms, SEBI aims to bolster investor confidence and facilitate capital flows towards impactful social initiatives. The ongoing evolution of SSE under SEBI's guidance is poised to play a pivotal role in driving India's social investment landscape towards greater inclusivity and sustainability.
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