Sebi Extends Registration Validity Period for Not-for-Profit Entities on Social Stock Exchange
Detailed Analysis
Sebi Relaxes Rules for NPOs on Social Stock Exchange
Markets regulator Sebi has extended the registration validity for not-for-profit organisations on the Social Stock Exchange (SSE), allowing their enrolment as NPOs for three years without raising funds. The regulator has also lowered the minimum subscription requirement for issuing Zero Coupon Zero Principal Instruments (ZCZP) to 50 per cent from 75 per cent, enhancing fundraising flexibility for NPOs.
The moves are aimed at promoting the SSE and facilitating ease of fundraising and encouraging greater participation by NPOs, Sebi said in its circular on Wednesday. The regulator has taken into account practical challenges faced by NPOs, including delays in statutory and regulatory approvals.
Sebi has extended the validity period to three years from the existing two years, during which NPOs can remain registered on the SSE without raising funds. This is a significant relaxation, allowing NPOs to have more time to prepare for fundraising and navigate complex regulatory requirements.
Additionally, the regulator has lowered the minimum subscription requirement for Zero Coupon Zero Principal instruments to 50 per cent from 75 per cent. However, this relaxation would apply only to projects where costs and outcomes can be implemented on a clearly identifiable per-unit basis, ensuring that partial subscription does not adversely affect project execution.
Funding Flexibility Comparison
| Instrument Type | Original Minimum Subscription Requirement | New Minimum Subscription Requirement | | --- | --- | --- | | Zero Coupon Zero Principal | 75% | 50% |
In such cases, SSEs would be required to carry out due diligence to ensure that funds raised at the lower subscription threshold can still be meaningfully deployed towards the stated objectives. Also, the regulator said that funds would be refunded to investors if the minimum subscription requirement is not met.
Sebi has also clarified the rules for NPOs that wish to raise funds on the SSE without meeting the minimum subscription requirement. For this, the SSE shall, prior to granting in-principle approval for such partial fundraising, undertake due diligence to satisfy themselves that the funds raised towards the object(s) are capable of being deployed in a meaningful manner, taking into consideration the subscription scenarios disclosed in the fundraising document.
In March, the Sebi board approved a proposal to sharply reduce the minimum investment required from individual investors in social impact funds to Rs 1,000 from the existing Rs 2 lakh, in a bid to widen retail participation and ease fundraising for NPOs on the SSE.
