Social Stock Exchange: SEBI Moots Reducing The Minimum Issue Size

The Securities and Exchange Board of India proposed reducing the minimum issue size of non-profit organisations raising funds through social stock exchanges to Rs 50 lakh from the existing Rs 1 crore.

The proposal has been put forward considering the infancy of the SSEs and the lack of awareness around them, the markets regulator said on Tuesday.

Social stock exchanges are platforms that allow non-profit organisations to raise funds for their social initiatives. They came into existence through amendments to various SEBI regulations in 2022 and function as a separate segment of a stock exchange.

Currently, the NSE and BSE have their own segments of social stock exchanges. In this segment, funds are raised through the issue of zero coupons and zero principal instruments to investors for a social purpose.

The present proposals consist of a set of recommendations that will help improve the flexibility of existing SSEs. The recommendations are based on the issues identified by the SEBI advisory committee.

Some of the key proposals are as follows:

Under the present regulations, an investor should have at least Rs 2 lakh in order to subscribe to an instrument. However, the present proposal recommends reducing the application size to Rs 10,000. This will help a large number of investors who may like to subscribe to the instruments of more NPOs, said SEBI. The minimum application size of Rs 2 lakh may be too large for people who donate on a regular basis, the regulator said.

Under the present law, only a charitable institution registered as a non-profit organisation under the income tax laws is eligible to raise funds through an SSE. This doesn't include educational institutions established by the central or state governments for the public good. Since these entities use their income solely for educational purposes and not for profit, they should also be exempt, according to SEBI.

Social auditors are individuals registered with the board engaged in the social impact assessment of an entity raising funds through SSEs. Since 'auditor' is often used in a negative connotation, it should be changed to a nomenclature that provides some level of comfort to NPOs and conveys a positive approach towards the social sector, SEBI said. The term social impact assessor is suggested as an alternate term.

Besides the above changes, SEBI has also proposed relaxations in the format for providing past social impacts of the NPO. Comments on the above proposals can be submitted until Sept. 19.