SEBI Guidelines for IPF and ISF

May 31, 2023

Comprehensive guidelines were issued recently by SEBI for the Investor Protection Fund (IPF) and Investor Services Fund (ISF). These guidelines cover various aspects, including the constitution, management, contribution, and utilization of the funds. Additionally, SEBI has provided a Standard Operating Procedure (SOP) to outline the process and timelines for key activities related to investor protection and services.

Understanding the Guidelines

SEBI’s guidelines aim to ensure the effective functioning and management of the IPF and ISF maintained by stock exchanges and depositories. The IPF guidelines encompass the constitution of the fund, the role of trustees, contribution mechanisms, and the utilization of funds. Similarly, the ISF guidelines outline the purpose, funding sources, and utilization strategies for the Investor Services Fund.

Effective Date of Implementation

SEBI has set June 29 as the effective date for the new guidelines to be implemented. This allows market participants to familiarize themselves with the requirements and make the necessary adjustments for compliance.

Trustee Composition for IPF

The IPF Trust of both stock exchanges and depositories will consist of five trustees. This includes three Public Interest Directors, one representative from investor associations, and a Chief Regulatory Officer or Compliance Officer. The maximum tenure of a trustee (excluding the Chief Regulatory Officer or Compliance Officer) will be five years, ensuring periodic reviews and fresh perspectives.

Contribution Mechanisms

To ensure the stability and adequacy of the IPF, SEBI has outlined specific contribution mechanisms for stock exchanges and depositories. Stock exchanges will contribute 1% of the listing fees received every quarter. Additionally, the interest earned on the security deposit kept by issuer companies during public offerings and penalties collected from trading members will also be channeled into the IPF. Depositories, on the other hand, are required to contribute 5% of their annual profits from depository operations. This ensures a steady flow of resources to protect investors’ interests.

Utilization of IPF and ISF

The funds from IPF will be utilized to meet investment claims of clients affected by defaulting trading members, provide interim relief to investors, and support investor education initiatives. The ISF, on the other hand, will primarily focus on promoting investor education and awareness programs. SEBI emphasizes that at least 20% of the listing fees received by stock exchanges must be set aside for ISF to ensure effective services to the investing public.

Unutilized Balances and Continuity

To maintain continuity in investor protection, SEBI has established provisions for the transfer of unutilized balances from the IPF and ISF in the event of stock exchanges or depositories winding up, derecognition, or exiting. These unutilized funds will be transferred to the Investor Protection and Education Fund of SEBI, ensuring that the resources continue to serve their intended purpose.

Fostering Investor Confidence

SEBI’s comprehensive guidelines and SOP play a crucial role in strengthening investor confidence. By ensuring transparent management, sufficient contributions, and strategic utilization of funds, these guidelines contribute to the robustness and integrity of India’s capital markets. The emphasis on investor education and awareness further empowers investors to make informed decisions and protect their interests.

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