Amendments to Social Stock Exchange Framework - A Summary of Recent Developments

The Securities and Exchange Board of India (SEBI) had notified the detailed framework on Social Stock Exchange (SSE) vide its circular SEBI/HO/CFD/PoD-1/P/CIR/2022/120 dated September 19, 2022 (“SSE Framework”). As on date 32 organizations have registered on the BSE SSE and 44 organizations have registered on the NSE SSE. 

Pursuant to the feedback received through public consultation, SEBI has approved certain amendments to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”) and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”) vide notification dated December 21, 2023. Further, SEBI has approved certain modifications/additions to the SSE Framework vide its circular SEBI/HO/CFD/PoD-1/P/CIR/2023/196 dated December 28, 2023. 

A. Amendments to the SSE Framework

The following are the amendments to the Minimum requirement to be met by a not-for-profit organization (NPO) for registration with SSE:

1. Registration certificate under Section 12A/12AA/12AB/10(23C)/10(46) to be valid for at least 12 months.
2. To disclose all pending notices or scrutiny cases from all regulatory and statutory authority shall be disclosed at the time of making the application for the registration.
3. Fines or penalties if imposed shall be disclosed as paid or appealed within 7 days.* 
4. Entity to ensure disclosure whether tax deduction is available or not to investors.
5. Details of 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 beneficiary, cost per beneficiary and administrative overheads.**

[*Previously, NPOs that had ongoing tax scrutiny or notice proceedings were precluded from registration.

** Disclosure of key metrics of social impact has been a new introduction of the 2023 amendment, indicating the imperative for NPOs to measure their impact.]

The following are the amendments for the Minimum Initial Disclosure requirement for NPOs raising funds through the issuance of Zero Coupon Zero Principal Instruments: 

1. The NPO through the lead manager(s), should file the draft fund-raising document with the Social Stock Exchange (SSE) where it is registered along with the fees as specified by the SSE and an application seeking in-principal approval for listing of its Zero Coupon Zero Principal Instruments on the SSE, provided that the SSE shall specify the details to be incorporated in the fund-raising document.
2. The draft fund-raising document shall be made available on the website of SSE and the not-for-profit organization for a period of at least 21 days for public comments. 
3. The SSE shall provide its observation on the draft fund-raising document to the NPO within a time period of 30 days from filing of the draft fund-raising document or receipt of clarification, if any, sought by the SSE from the NPO, whichever is later. 
4. The NPO shall incorporate the observations of the SSE in draft fund-raising document and file the final fund-raising document to SSE prior to opening the issue.

The draft fund-raising document and final fund-raising document should contain all material disclosures which are true and adequate to enable the applicants to take an informed decision. The draft fund-raising document and the final fund-raising document should contain disclosures as may be specified by SEBI from time to time, provided that the SSE may mandate additional disclosures in respect of the draft fund-raising document and the final fund-raising documents.

Other conditions relating to issuance of Zero Coupon Zero Principal Instruments: 

1. Zero Coupon Zero Principal Instruments shall be issued in dematerialized form only. 
2. 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. 
3. The minimum issue size shall be Rs. 50,00,000/- (Rupees Fifty Lakhs Only).* 
4. The minimum application size shall be Rs. 10,000/- (Rupees Ten Thousand Only).* 
5. 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. 
6. In case of any under subscription, the NPO shall, in the fund-raising document, provide details on the following: 

a) manner of raising balance capital in case of such under subscription between 75% and 100%; 

b) 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. The SSE shall maintain the details of the allotment pursuant to issuance of Zero Coupon Zero Principal Instruments by the NPO. 

8. The SSE 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.

[* Prior to the amendment, the minimum issue size was Rupees One Crore and minimum application size was Rupees Two Lakhs.]

B. Amendments to the LODR

Further, the word “Social Auditor” is now substituted with the words “Social Impact Assessor” and the expression “Social Audit Firm” is substituted with the words “assessed by a Social Impact Assessment Firm”).

This indicates the shift of approach from an inspection/audit model based on a lack of trust towards an impact informed and trust building direction.

C. Amendments to the ICDR

Regulation 292A 

• In clause (f), the word “Auditor” is substituted with the words “Impact Assessor”.
• In clause (g), the word “Audit” is substituted with the words “Impact Assessment” and the word “Auditors” is substituted with the words “Impact Assessor(s)”

Regulation 292C

• In clause (a), in sub-clause (i), the words “institutional investors and/or non-institutional investors” shall be substituted with the words “eligible investors”.