SEBI issued a circular on May 30, 2024, detailing guidelines for the Investor Protection Fund (IPF) and Investor Services Fund (ISF) applicable to stock exchanges with commodity derivatives segments.
Key points from the circular:
1. Amendment and Implementation: Effective from June 1, 2024, the circular mandates relevant exchanges to amend their rules, inform members, and report implementation status to SEBI.
2. Structure of IPF: The IPF is managed by a Trust consisting of five trustees, including Public Interest Directors, a SEBI-recognized investor associations representative, and the exchange’s Chief Regulatory Officer or Compliance Officer.
3. Contributions and Utilization: Contributions to the IPF include turnover fees, interest or income from investments, penalties, and other SEBI-specified contributions. The IPF aims to segregate funds from the exchange’s liabilities and ensure proper utilization and investment with a focus on safety and prudence.
4. Claims and Disbursement: Investors can claim compensation from the IPF for losses due to a defaulter trading member. The claims must be submitted within a specified period, and the disbursement process involves assessment by the Member Core Settlement Guarantee Fund Committee (MCSGFC) and subsequent compensation disbursal by the IPF Trust.
5. Compensation Limits and Reviews: Maximum compensation per investor is predetermined and reviewed triennially. Disbursement occurs without waiting for the defaulter’s asset realization, and any recovered assets are returned to the IPF. The circular eliminates the need for indemnity undertakings from clients for claims.
6. Utilization of IPF Income: Income generated from the IPF’s corpus can be utilized for investor education, awareness programs, setting up Investor Service Centers (ISCs), and conducting research activities, subject to the approval of the IPF Trust.
7. Investment Strategy and Expenses: Guidelines specify permissible investments, including government securities and fixed deposits, with a diversification strategy to mitigate risks. Administrative expenses related to the IPF Trust and ISCs can be covered by income, but excess costs must be borne by the stock exchange.
8. Review and Disclosure: Stock exchanges must conduct half-yearly reviews of the IPF corpus to ensure its adequacy. They must disclose balance and utilization details regularly. Policies on processing investor claims must be publicly accessible and accompanied by FAQs.
9. ISF Establishment and Utilization: The ISF, overseen by the Regulatory Oversight Committee, should maintain a separate bank account and be utilized for investor education, awareness programs, and maintaining price ticker boards. ISF-funded ISCs must offer various facilities and support investor education programs.
10. Staff Training and Market Literacy: Emphasis on trained staff at ISCs to assist investors effectively and promote market literacy through various programs.
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