CIR/MRD/DP/ 06 /2011
To,
All Stock Exchanges
Dear Sir / Madam
Sub: Modification to Investor Protection Fund (IPF)/ Customer ProtectionFund (CPF) Guidelines
1. SEBI vide circular no MRD/DoP/SE/Cir-38/2004 dated October 28, 2004had issued comprehensive guidelines for regulation of Investor ProtectionFund (IPF)/ Customer Protection Fund (CPF) required to be maintained byStock Exchanges. Further vide circular No. MRD/DoP/SE/Cir-21/2006 datedDecember 14, 2006, SEBI issued a clarification to Clause 24 of theAnnexure to Circular dated October 28, 2004, specifying that in case ofdefaulting brokers with multiple memberships, the residual amount aftersatisfying claims of SEBI, the concerned stock exchange, and all otherexchanges, would be credited to the IPF/CPF of the concerned exchange.The Circular dated October 28, 2004 as clarified by Circular datedDecember 14, 2006 shall hereinafter be referred to as the ComprehensiveGuidelines on IPF/CPF of Stock Exchanges or The ComprehensiveGuidelines.
2. Exemptions have been sought by Stock Exchanges from strict compliancewith Clause 24 of the Annexure to Circular dated October 28, 2004 on theground that the residual amount remaining after satisfaction of claimsagainst the defaulting broker should be refunded to the broker and notcredited to the IPF/CPF. SEBI has decided to modify certain clauses of theabovementioned Annexure, with a view to harmonise the practices followedby various exchanges to meet investor claims.
3. Thus it has been decided to modify the Comprehensive Guidelines –
a) Clause 8 shall be substituted with the following
8.The specified period for inviting legitimate claims against a defaultermember, shall be a minimum of ninety days.
b) Clause 13 shall be substituted with the following
13.If any eligible claims arise within three years from the date of expiryof the specified period such claims shall be borne by the stockexchanges without any recourse to the IPF/CPF.Provided that any claims received after three years from the date ofexpiry of the specified period may be dealt with as a civil dispute.Provided further that in cases where any litigations are pending againstthe defaulter member, the residual amount, if any, may be retained bythe stock exchange until such litigations are concluded.Disbursement of Claims from the IPF/ CPF
c) Clause 22 shall be deleted.
d) Clause 23 shall be substituted with the following –
23. The compensation shall be disbursed to the investor from the IPF/CPF incase there is a shortage of defaulter broker™s assets after itsrealization.
e) Clause 24, as it reads after incorporation of clarification vide Circulardated December 14, 2006, shall be substituted with the following
24.The Stock Exchange shall ensure that the amount realized from theassets of the defaulter member is returned to the defaulter member aftersatisfying the claims of the Stock Exchange and SEBI in accordancewith the bye-laws of the Stock Exchange.Provided that in case of a member broker having membership onmultiple stock exchanges, amount realized from the assets of thedefaulter member shall be returned to the said member only aftersatisfying eligible claims of the concerned stock exchange, SEBI, andother stock exchanges.
4. Exchanges are advised to
a) make necessary amendments to the relevant bye-laws, rules andregulations for the implementation of the above decision.
b) bring the provisions of this Circular to the notice of the memberbrokers/clearing members of the Exchange and also to disseminate thesame on the website.
c) communicate the status of the implementation of this Circular in theMonthly Development Report to SEBI.
5. This circular is being issued in exercise of powers conferred under Section11 (1) of the Securities and Exchange Board of India Act, 1992 to protectthe interests of investors in securities and to promote the development of,and to regulate the securities market.
Yours faithfully,
Harini Balaji
Deputy General Manager
022-26449372
email: harinib@sebi.gov.in
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