The National Stock Exchange of India has been granted approval by the Securities and Exchange Board of India to establish a Social Stock Exchange (SSE). This new segment within the stock exchange will enable social enterprises to raise funds from the public.
Background
In 2019, the Finance Minister of India, Nirmala Sitharaman, proposed the creation of a stock exchange under the market regulator’s purview. This proposal was cleared by SEBI in September 2021.
What is a Social Stock Exchange?
A Social Stock Exchange (SSE) is a dedicated platform for social enterprises to raise capital. This exchange will operate as a separate segment within the existing stock exchange and help social enterprises raise funds from the public through its mechanism. It will serve as a medium for enterprises to seek finance for their social initiatives and provide increased transparency about fund mobilization and utilization.
Features
Retail investors can only invest in securities offered by for-profit social enterprises (SEs) under the Main Board. In all other cases, only institutional investors and non-institutional investors can invest in securities issued by SEs.
Eligibility
Any non-profit organization (NPO) or for-profit social enterprise (FPSE) that establishes the primacy of social intent would be recognized as a social enterprise (SE). This recognition will make it eligible to be registered or listed on the SSE.
NPOs can raise money through the issuance of Zero Coupon Zero Principal (ZCZP) Instruments from private placement or public issue or donations from mutual funds.
Benefits of SSE
The SSE will provide a platform for social enterprises to raise funds, which they can then use to scale their operations and achieve their social goals. It will also provide visibility to these enterprises, making it easier for them to attract investors who share their social vision. The SSE will also promote transparency and accountability, as social enterprises will be required to report on the use of funds raised through the exchange.
Challenges
While the SSE presents an opportunity for social enterprises to raise capital, there are several challenges that need to be addressed. These include:
Limited investor awareness: Most retail investors in India are not familiar with the concept of social enterprises and the SSE. This lack of awareness may make it difficult for social enterprises to attract investment.
Low liquidity: Social enterprises may face challenges in finding buyers for their securities, which could affect the liquidity of the exchange.
Regulatory challenges: The SSE will need to comply with several regulations, which may increase the costs of listing for social enterprises. This could make it difficult for smaller social enterprises to list on the exchange.
MCQs on Features and Eligibility of India’s Social Stock Exchange (SSE)
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What is the Social Stock Exchange (SSE)?
A. A dedicated platform for social enterprises to raise capital
B. A platform for traditional businesses to raise capital
C. A stock exchange for non-profit organizations
D. An exchange for trading in commodities and derivatives
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Who can invest in securities issued by social enterprises (SEs) under the SSE?
A. Only institutional investors and non-institutional investors
B. Only non-institutional investors
C. Only retail investors and non-institutional investors
D. Only retail investors
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What are the challenges faced by social enterprises in raising funds through the SSE?
A. Limited investor awareness, low liquidity, and regulatory challenges
B. High regulatory compliance and limited liquidity
C. Limited investor awareness and high liquidity
D. Low regulatory compliance and low liquidity
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