SEBI Issues Guidelines For Investor Protection And Services Funds

Key Points of the Guidelines

1. All stock exchanges are mandated to set up an IPF, administered through a separate trust. The IPF Trust will consist of five trustees: three Public Interest Directors (PIDs), one representative from SEBI-recognized investor associations, and the Chief Regulatory Officer or Compliance Officer of the stock exchange. The maximum tenure for trustees, excluding the Chief Regulatory Officer or Compliance Officer, is five years.
2. Exchanges must contribute one percent of their turnover fee from trading members or Rs 10 lakh, whichever is higher, annually to the IPF. Additionally, interest or income from IPF investments and all penalties collected by the exchange must be credited to the IPF.
3. The primary purpose of the IPF is to compensate legitimate investment claims from clients of defaulting trading members. The fund's interest or income can also be used for investor education, setting up investor service centers, maintaining an investor-focused website, and administrative expenses.
4. Exchanges must publish notices inviting claims against defaulter trading members within a specified period, not less than one year from the declaration of default. These notices must be widely circulated in national and regional newspapers and communicated via SMS and email to affected clients. Claims eligible for compensation are those filed within the specified period or up to three years beyond, if justified. Claims related to speculative transactions or those from trading members or their associates are excluded.
5. Stock exchanges, in consultation with the IPF Trust and SEBI, will set suitable compensation limits for single investor claims, reviewed at least every three years. Compensation disbursement from the IPF does not require waiting for asset realization from the defaulter trading member, ensuring timely relief for investors.
6. IPF funds must be invested prudently in secure instruments, adhering to Indian Trust Act provisions. Exchanges must conduct half-yearly reviews to ensure the adequacy of the IPF corpus, with findings disclosed in monthly development reports and on their websites.

Guidelines for Investor Services Fund (ISF)

1. Exchanges must set up an ISF, overseen by a Regulatory Oversight Committee (ROC). Contributions to the ISF include one percent of the turnover fee from members, with a minimum annual contribution of Rs 10 lakh. Income earned on ISF must be reinvested into the fund.
2. ISCs must offer facilities such as dedicated staff for investor assistance, real-time commodity price displays, and educational materials on commodity derivatives markets. They also serve as venues for investor education programs and workshops.
3. Exchanges must disclose the ISF balance and its utilization monthly. Policies for processing investor claims must be publicized, with any amendments communicated to investors promptly.