'Sebi' Puts In Place Guidelines For Investor Protection Fund, Investor Services Fund

Capital markets regulator Sebi on Tuesday came out with exhaustive guidelines for Investor Protection Fund (IPF) and Investor Services Fund (ISF) maintained by stock exchanges and depositories. The detailed guidelines are about the constitution and management of the IPF, contribution to IPF by exchanges as well as depositories, and utilization of IPF. In addition, Sebi has issued a detailed Standard Operating Procedure (SOP), indicating the process and timelines for the declaration of default of a trading member (TM), processing of investor claims out of IPF, and review of claims, according to a circular.

About the constitution, Sebi said that all stock exchanges and depositories will have to establish an IPF. The IPF of the stock exchange and depository will be administered through separate trusts created for the purpose. The IPF Trust of the stock exchange and Depository will consist of five trustees -- three Public Interest Directors, one representative from the investor associations, and a chief regulatory officer or compliance officer and the maximum tenure of a trustee (excluding the chief regulatory officer or compliance officer) would be five years.

Concerning contributions of bourses, the regulator said that stock exchanges will have to contribute 1 per cent of the listing fees received every quarter and the entire interest earned on the security deposit kept by the issuer companies at the time of the offering of securities for subscription to the public and penalty collected by exchanges from trading members. In respect to contribution to IPF of depositories, Sebi said that they have to contribute 5 per cent of their profits from depository operations every year, all fines and penalties recovered from depository participants (DPs) and other users including and income received out of any investments made from the IPF.

The amount in IPF will be used to meet the investment claims of the clients of the defaulting trading members, to pay interim relief to investors, and promote investors' education. The stock exchanges and depositories will have to conduct a half-yearly review to ascertain the adequacy of the IPF corpus. In case the IPF corpus is found to be inadequate, the same would be enhanced appropriately.

In respect of the investor services fund (ISF), Sebi said that stock exchanges will have to set aside at least 20 per cent of the listing fees received by ISF for providing services to the investing public. To have better management and control of the contributions and utilization of the ISF corpus, supervision of the same will rest with the Regulatory Oversight Committee.

ISF will be used for the purpose of the promotion of investor education and investor awareness programs, the cost of training arbitrators and at least 50 per cent of the corpus should be spent in Tier II & Tier III cities. If a stock exchange or a depository is wound up or derecognized or exits, then the balance in the IPF and ISF lying unutilized with the stock exchange and depository will be transferred to the Investor Protection and Education Fund of Sebi. The new guidelines would come into force from June 29, the Securities and Exchange Board of India (Sebi) said.

(PTI)