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SEBI consolidates guidelines for Investor Protection Fund applicable to Exchanges

Securities and Exchange Board of India

CIRCULAR

CIR/CDMRD/DEICE/CIR/P/2017/53                                                                                        

June13, 2017

To,

The Managing Directors / Chief Executive Officers

All National Commodity Derivatives Exchanges Sir/Madam,

Subject: Comprehensive guidelines for Investor Protection Fund, Investor Service Fund and its related matters at National Commodity Derivatives Exchanges.

1. SEBI, vide its circular no SEBI/HO/CDMRD/DEICE/CIR/P/2016/94 dated September 26, 2016, consolidated various norms and guidelines relating to Investor Protection Fund, issued by the erstwhile FMC, applicable to the National Commodity Derivatives Exchanges (herein after referred to as Exchanges).

2. With the objective to align with the practices in securities markets, based on the internal deliberations, discussions and feedback as received from the National Commodity Derivatives Exchanges, it has been decided to modify certain clauses in the aforesaid circular as under :

Constitution and management of the IPF

a) Clause 3.2. shall be substituted the following – 3.2. The IPF Trust of the exchange shall have maximum 5 trustees. The IPF Trust shall consist of three public interest directors, one representative from investor associations recognized by SEBI and the compliance officer of the exchange. The maximum tenure of a trustee (excluding the compliance officer of the exchange, whose trusteeship would be co-terminus with the service) shall be five years or as specified by SEBI.

b) Clause 3.3. and 3.6. shall be deleted

Contribution to the IPF

c) Clause 4.1. shall be substituted the following-

4.1. All the penalties levied and collected by the exchange, except for the settlement related penalties (including penalties from delivery default), shall be credited of the IPF.

4.2. 1% of the turnover fee charged by the exchange from its members/brokers or ten lakh whichever is higher in a financial year.

Eligibility of claims

d) Clause 6.2. shall be substituted the following-

6.2. If any eligible claim arises within three years from the date of expiry of the specified period, such claim

i. shall be considered eligible for compensation from IPF/CPF in case where the defaulter member’s funds are inadequate. In such cases, IPF/CPF Trust shall satisfy itself that such claim could not have been filed during the specified period for reasons beyond the control of the claimant.

shall not be considered eligible for compensation from IPF/CPF in case where the surplus funds of the defaulter member is returned to the defaulter member. The same shall be borne by the exchanges after scrutinizing and satisfying itself that such claim could not have been filed during the specified period for reasons beyond the control of the claimant.

Provided that any claim received after three years from the date of expiry of the specified period may be dealt with as a civil dispute.

e) Clause 6.3. shall be deleted

f) Clause 6.4. shall be substituted the following-

6.4. The investor claim arising out of a default of a broker/member of the exchange shall be eligible for compensation from IPF.

Determination of legitimate claims

g) Clause 7.1. and 7.2. shall be substituted as following-

7.1. In case of claims against a defaulter member, the claims of the claimant shall be placed before the defaulters’ committee for sanction and ratification. The Defaulters’ Committee’s advice with respect to legitimate claims shall be sent to IPF Trust for disbursement of the amount.

7.2. In case the claim amount is more than the maximum limit for compensation under IPF or the amount sanctioned and ratified by the Defaulters Committee is less than the claim amount, then the investor may prefer for arbitration mechanism for claim of the balance amount.

h) Clause 7.3. shall be inserted the following-

7.3. In the event of default by the member, all transactions executed on the exchange platform shall be eligible for settlement from IPF subject to the appropriate norms laid down by the defaulters’ committee. The IPF of the exchange shall be utilized for the clients of SEBI registered members. However, the said amount shall not be more than the maximum limit as prescribed at all time.

Threshold limit for claims

i) Clause 8.1 and 8.2 shall be substituted the following:

8.1. The Exchanges are free to fix suitable compensation limits, in consultation with IPF trust. However, the amount of compensation available against a single claim of an investor arising out of defaulter by a member broker shall not be less than Rs 1 lakh.

8.2. The exchanges in consultation with IPF Trust, shall review and progressively in case the amount of compensation available against a single claim from an investor at least every three year.

j) Clause 8.3 shall be deleted

For more details refer circular 

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