investor protection Fund (IPF) is set up by Inter-connected Stock Exchange (ISE) in accordance with the guidelines issued by the Ministry of Finance for investor protection, in order to compensate the claims of investors against the members of exchanges (brokers) who have defaulted or failed to pay.
The investor can ask for the compensation if a member (broker) of the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE) or any other stock exchange fails to pay the due money for the investments made. The Stock Exchanges have put certain limits on the level of compensation paid to the investors. This limitation has been put according to the discussions and guidance with the IPF Trust. The limit allows that the money to paid as a compensation for a single claim shall not be less than INR 1 lakh - for the case major Stock Exchanges like BSE and NSE - and it should not be less INR 50,000 in case of other Stock Exchanges.
The Exchange shall establish and maintain an Investors' Protection Fund to protect the interests of the clients of the trading members of the Exchange, who may have been declared defaulters or who may have been expelled, under theprovisions of the Rules, Bye-laws and Regulations of the Exchange.
Money in Investor Protection Fund (IPF) is collected by charging one percent turnover fee by the stock exchanges from the brokers or INR 25 lakh, whichever is less in the Fiscal Year. The stock exchanges follow the norms by SEBI to ensure that the funds in the IPF are well separated and are immune from any other liabilities. Apart from the settlement related penalties such as deliver Default fine, all the other fines charged and collected by the exchanges will be a part of the Investor Protection Fund (IPF).
A Trust is created for the administration of the Investor Protection Fund (IPF). Stock Exchange's MD and CEO along with a name suggested by the other Exchanges and approved by SEBI would be part of the administration panel.
The Trust of Investor Protection Fund (IPF) may opt for arbitration mechanism to decide the legitimacy of the claims received. The Trust might also ask the members of the Stock Exchange's default committee for advice to grant the payments to be made to the claimants. SEBI has allowed the exchanges the freedom to fix suitable compensation limits with proper consultation with the IPF trust.
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The Investors’ Protection Fund may provide compensation against a genuine and bonafide claim made by any client, who has either not received the securities bought from a trading member for which the payment has been made by such client to the trading member thereagainst or has not received the payment for the securities sold and delivered to the trading member or has not received any amount or securities which is/are legitimately due to such client from the trading member, who is either declared a defaulter or expelled by the Exchange or where the trading member, through whom such client has dealt, is unable to get the securities rectified or replaced for the reason that the introducing trading member at the Exchange is either declared a defaulter or expelled by the Exchange, under the relevant Rules, Bye-laws and Regulations of the Exchange.
Every trading member of the Exchange shall contribute such amount, as may be determined by the Relevant Authority from time to time, to constitute the corpus of the Investors’ Protection Fund. The Relevant Authority shall have the power to Call for such additional contributions, as may be required from time to time to make up for any shortfall in the corpus of the Investors’ Protection Fund. The Exchange shall also credit to the Investors’ Protection Fund such amount out of the listing fees collected by it in each financial year, as may be prescribed by SEBI or as may be specified in the relevant Regulations from time to time. The Exchange may also augment the Investors' Protection Fund from such other sources, as it may deem fit.
The Exchange or SEBI may from time to time determine the ceiling amount upto which the contribution from the trading members and contribution from the listing fees shall be collected and credited to the Investors’ Protection Fund. While determining the ceiling amount, the Relevant Authority may be guided by factors, which may, inter alia, include highest amount of compensation disbursed from the Investors’ Protection Fund in a financial year during the preceding five financial years, amount of interest accrued to the Fund in the previous financial year and the number of times the size of the corpus is a multiple of the highest aggregate amount of compensation disbursed from the Investors’ Protection Fund in any particular financial year. The Relevant Authority may, subject to taking prior approval of SEBI with proper justification, decide to reduce, and/or not to call for, any further contribution from the trading members and/or from listing fees.
The Relevant Authority may, at its absolute discretion, decide to have an insurance cover to protect the corpus of the Investors’ Protection Fund.
The Investors’ Protection Fund as above shall be held in trust and shall vest in the Exchange or any other entity or authority, as may be specified by the Relevant Authority from time to time. The Investors’ Protection Fund shall be managed by the Trustees appointed under the Trust Deed created and executed and in accordance with the provisions contained in the Trust Deed and the Rules, Bye-laws and Regulations of the Exchange.
The Trustees of the Fund shall be guided by the recommendations of the Committee for Settlement of Claims Against Defaulters, who may scrutinize and vet each of the claims placed before them for consideration after due screening by the officials of the Exchange and also by an Independent Chartered Accountant, if need be, for satisfying that each claim meets the requirements, may be stipulated by the Committee for Settlement of Claims against Defaulters from time to time. The amount of compensation that may be disbursed out of the Investors Protection Fund to a client shall be limited to the balance amount of the admitted claim of the client as may be remaining after adjustment of the amount paid out of distribution of the assets vesting in the Committee for Settlement of Claims Against Defaulters on account of the concerned defaulter or expelled trading member. All claims received shall be processed and paid out of Fund as provided herein:
All genuine and bonafide claims, for which an order or trade is recorded on the ATS of the Exchange, may be eligible for consideration irrespective of whether the claimant produces a copy of contract note as proof or otherwise.
No claim shall be entertained unless such a claim is supported with necessary and sufficient proof of payment or delivery of securities to the trading member who is declared a defaulter or expelled, either directly or through a sub-broker.
All claims, which meet the requirements of Bye-laws as mentioned above, will be eligible for consideration by the Exchange.
Any claim which does not meet both the requirements of Bye-laws above above shall be placed before the Committee for Settlement of Claims Against Defaulters for scrutiny and the said Committee may consider each case on its merit, and a decision on any case made on the Basis of the merits of the case shall not constitute or be quoted as a precedent in any other case.
While considering a claim referred to under Bye-law above above, the Committee for Settlement of Claims Against Defaulters may direct payment of such claim, which, in the opinion of the Committee, is made by an investor and the claim has direct relevance to such transactions executed on the ATS of the Exchange.
A claim will be eligible for payment to the extent of the actual loss suffered by an investor and the actual loss would include any difference receivable by the claimant arising out of the transactions. No claim shall include any claim for damages or interest or notional loss.
In case of a claim which does not fall under Bye-laws above, the Relevant Authority may require the claimant/s to produce necessary documentary or other evidence in regard to the following issues, to be placed before the Committee for Settlement of Claims Against Defaulters, substantiating that
The Committee for Settlement of Claims Against Defaulters shall not entertain any claim against a defaulter / expelled trading member, where the trading membership ceases to exist attributable to the action taken by the Exchange i.e. other than surrender of trading membership
more details can be found here Chapter 16 Investor Protection Fund By SEBI
Any client desirous of making a claim under these Bye-laws shall be required to sign and submit an undertaking to the Exchange while submitting a claim to the effect that the decision of the Relevant Authority shall be final and binding on him.
The Government of India has established a fund called Investor Education and Protection Fund (IEPF) for investors. Under this fund, all the share applications money, dividends, matured deposits, interest, debentures, etc. that are unclaimed for over seven years are pooled together. Investors who failed to collect their dividends or interests etc. can now seek a refund from IEPF.
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