SEBI panel submits report on Social Stock Exchanges

A working group set up by the capital markets regulator Securities and Exchange Board of India (SEBI) has submitted the report on Social Stock Exchanges (SSE).

Key-highlights of the recommendations

• The 15-member group has proposed tax breaks and direct listing of non-profit organisations to encourage social stock exchanges through issuance of bonds.
• The other key recommendations include a range of funding mechanisms including some of the existing ones such as Social Venture Funds (SVFs) under the Alternative Investment Funds.
  • An SVF is a category-I Alternative Investment Fund (AIF) that is allowed by SEBI to issue securities or units of social ventures to investors.
• The panel recommended widening the use of mainstream funding structures such as the SVFs and mutual funds by allowing such funds to become more than just grants-in, grants- out vehicles for charitable purposes.
• The group also recommended that investors be exempted from paying securities transaction tax (STT) and long-term capital gains tax (LTCG) on their trades and investments.
  • The LTCG exemption will encourage investors to stay invested for a longer time and provide much-needed long-term capital for social enterprises.
• A new minimum reporting standard has been proposed for organizations which would raise funds under SSE.
• For-profit social enterprises can also list on SSE with enhanced reporting requirements.

Background

• In September 2019, Sebi constituted a working group on SSE under the chairmanship of Ishaat Hussain, Director, SBI Foundation.
• The working group was constituted to examine and make recommendations with respect to possible structures and mechanisms, within the securities market domain, to facilitate the raising of funds by social enterprises and voluntary organizations.
• The decision came after Finance Minister Nirmala Sitharaman's budget announcement in July last year about setting up such exchanges to take the capital markets closer to the masses and meet various social welfare objectives.

Important terms

• Securities and Exchange Board of India (SEBI)
• SEBI is a statutory regulatory body entrusted with the responsibility to regulate the Indian capital markets.
• It monitors and regulates the securities market and protects the interests of the investors by enforcing certain rules and regulations.
• SEBI was founded on April 12, 1992, under the SEBI Act, 1992.
• Headquartered in Mumbai, India, SEBI has regional offices in New Delhi, Chennai, Kolkata and Ahmedabad along with other local regional offices across prominent cities in India.

Social Stock Exchange

• Social Stock Exchange is a novel concept in India and such a bourse is meant to serve private and non-profit sector providers by channelling greater capital to them.
• The SSE is envisioned as one of the possible solutions to this pressing problem as it will unlock large pools of social capital, and encourage blended finance structures so that conventional capital can partner with social capital to address the urgent challenges of COVID-19.