CIRCULAR
SEBI/HO/MRD/MRD-PoD-3/P/CIR/2023/81 May 30, 2023
To,
All Recognized Stock Exchanges (excluding Commodity Derivatives Exchanges)
All Depositories
Dear Sir/ Madam,
Subject: Comprehensive guidelines for Investor Protection Fund and Investor
Services Fund at Stock Exchanges and Depositories
1. SEBI vide circular no. MRD/DoP/SE/Cir-38/2004 dated October 28, 2004 had
issued comprehensive guidelines for Investor Protection Fund (IPF) to be
maintained by Stock Exchanges. SEBI vide circular No.SE/10118 dated October
12, 1992 had also advised stock exchanges to establish an Investor Services Fund
(ISF). These guidelines have been modified from time to time through various
subsequent circulars.
2. Based on the feedback received from various market participants, discussions with
Stock Exchanges, Depositories and deliberations in Secondary Market Advisory
Committee (SMAC) of SEBI, it has been decided to modify certain provisions
of the existing guidelines for IPF and ISF.
3. The comprehensive guidelines for IPF and ISF are as under:
I. Investor Protection Fund
A. Constitution and Management of the IPF
i. All stock exchanges and depositories shall establish an IPF. The IPF of the stock
exchange and depository shall be administered through separate trusts created
for the purpose.
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ii. The IPF Trust of stock exchange and depository shall consist of five trustees as
under:
a) Three Public Interest Directors (PIDs);
b) One representative from the investor associations recognized by SEBI; and
c) Chief Regulatory Officer or Compliance Officer.
iii. The maximum tenure of a trustee (excluding the Chief Regulatory Officer or
Compliance Officer, whose trusteeship would be co-terminus with their service)
shall be five years or as specified by SEBI.
iv. The stock exchange and depository shall provide the secretariat for their IPF Trusts
respectively.
v. The stock exchange and depository shall ensure that the funds in the IPF are well
segregated and that their IPF is immune from any liabilities of the stock exchange
and depository respectively. Further, supervision of utilization of IPF and interest
or income from IPF will rest with the IPF Trust.
B. Contribution to IPF of Stock Exchange
i. The following contributions shall be made by the Stock Exchange to the IPF:
a) 1% of the listing fees received, on a quarterly basis.
b) 100% of the interest earned on the 1% security deposit kept by the issuer
companies at the time of the offering of securities for subscription to the public,
immediately on refund of the deposit.
c) Penalty collected by stock exchanges from Trading Members (TMs) for
deficiency in modification of client code, if any, pursuant to SEBI Circular No.
CIR/DNPD/6/2011 dated July 05, 2011.
d) Penalty collected by stock exchanges from TMs for default in pay-in for certain
trades during periodic call auction for Illiquid scrips, if any, pursuant to SEBI
Circular No. CIR/MRD/DP/ 6/2013 dated February 14, 2013.
e) Penalties collected by stock exchanges from their listed companies for non-
compliance with various requirements of the SEBI (Listing Obligation and
Disclosure Requirements) Regulations 2015 pursuant to SEBI Circular no.
SEBI/HO/CFD/CMD/CIR/P/2020/12 dated January 22, 2020.
f) Penalty collected from TMs for default in pay-in by an investor in an Offer For
Sale (OFS) transaction – 10% of the order value pursuant to SEBI Circular No.
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SEBI/HO/MRD/MRD-PoD-3/P/CIR/2023/10 dated January 10, 2023.
g) Contribution towards the IPF based on the transaction charges collected from
the members of the exchange, as per policy of the respective stock exchange.
h) At least 70% of interest or income received out of any investments made from
the IPF.
i) Any other contribution as may be specified by SEBI from time to time.
C. Contribution to IPF of Depository
i. The following contributions shall be made by the Depository to the IPF:
a) 5% of their profits from depository operations every year.
b) All fines and penalties recovered from Depository Participants (DPs) and other
users including clearing member pool account penalty as specified in SEBI
circular no. SMDRP/Policy/Cir-05/2001 dated February 01, 2001.
c) Interest or income received out of any investments made from the IPF.
d) Funds lying to the credit of IPR (Investor Protection Reserve) / BOPF
(Beneficial Owners Protection Fund) of the Depository or any other such fund
/ reserve of the Depository shall be transferred to IPF.
e) Any other contribution as may be specified by SEBI from time to time.
D. Utilization of IPF and interest or income from IPF
i. The amount in IPF and any interest or income generated from the IPF of the stock
exchanges and depositories shall be utilized for the purposes as stated in the table
below:
SN Particulars Utilization
1 IPF Stock Exchanges:
a) To meet the legitimate investment claims of the clients
of the defaulting TMs.
b) To pay interim relief to investors, if any, in terms of
paragraph-2(D) of circular No.
SEBI/HO/MRD1/ICC1/CIR/P/2021/625 dated
September 02, 2021, if any.
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SN Particulars Utilization
Depository:
a) Promotion of investor education and investor
awareness programmes through seminars, lectures,
workshops, publications (print and electronic media),
training programmes, etc. aimed at enhancing
securities market literacy and promoting retail
participation in securities market;
b) To utilize the fund for supporting initiatives of DPs for
promotion of investor education and investor
awareness programmes;
c) To meet the legitimate claims of the beneficial owners,
upto the maximum cap as to be determined by the
depository, in case the same is not settled by the
beneficial owner indemnity insurance;
d) To utilize the fund in any other manner as may be
prescribed or permitted by SEBI in the interest of
investors;
2 Interest or Stock Exchanges:
income a) To further strengthen the corpus, at least 70% of
received interest or income from IPF received every year shall
out of any be ploughed back to IPF;
investments b) To meet the expenses related to dedicated employees
made from of IPF Trust, administration of Investor Service
the IPF Centers (ISCs), other administrative and statutory
expenses such as applicable taxes, audit fees and
charity commissioner’s fee, etc., a maximum of 5% of
interest or income from IPF received during the year
may be utilized. In case the expenses exceed the
above limit, such excess expenses shall be borne by
the stock exchange and in case of non-utilization of
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SN Particulars Utilization
such amount in the same financial year, the same shall
be ploughed back to IPF;
c) The balance 25% may be utilized by the exchange for
promotion of investor education and investor
awareness programmes through seminars, lectures,
workshops, publications (print and electronic media),
training programmes etc. aimed at enhancing
securities market literacy, promoting retail
participation in securities market and undertaking
research activities related to securities market. Capital
expenditure would be permissible only w.r.t. setting up
of ISCs. However, no expenditure to be incurred on
product promotion in any manner;
d) In case of non-utilization of the 25% of interest or
income from IPF in the same financial year (as
mentioned at paragraph (c) above), the same shall be
ploughed back to the IPF;
e) Exchange should not spend in the name of setting up
of ISCs beyond its requirement. The main purpose of
setting up of ISCs should not be to earn any income.
However, income, if any, from the ISCs shall be
credited to the IPF Corpus;
f) The expenses related to technology at ISCs shall be
borne by the stock exchanges;
g) In any other manner, as may be prescribed or
permitted by SEBI, in the interest of investors.
Depositories:
To further strengthen the corpus, 100% of interest or
income from IPF shall be treated as corpus of IPF.
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E. Deployment of Funds of IPF by Stock Exchanges and Depositories
i. Funds of the IPF Trust shall be invested in instruments such as Central
Government securities, fixed deposits of scheduled banks and any such
instruments which are allowed as per the investment policy approved by the
respective governing boards of the stock exchanges and depository. The
investments shall be adequately diversified with single issuer exposure, excluding
Government securities, not exceeding 10% of the IPF corpus. The investment
policy shall be devised with an objective of capital protection, portfolio
diversification, liquidity, along with highest degree of safety and least market risk.
ii. The balance available in the IPF as at the end of each month and the amount
utilised during the month including the manner of utilization shall be reported to
SEBI in the Monthly Development Reports of the stock exchanges and depository
respectively.
F. Review of IPF Corpus
i. The stock exchanges and depositories shall conduct half-yearly review (by end of
March and September every year) to ascertain the adequacy of the IPF corpus.
In case the IPF corpus is found to be inadequate, the same shall be enhanced
appropriately.
G. Timelines for declaration of default of a TM, processing of investor claims out
of IPF and review of claims
i. A detailed Standard Operating Procedure (SOP), indicating the process and
timelines for declaration of default of a TM, processing of investor claims out of
IPF and review of claims was prescribed through various letters to stock
exchanges. In order to streamline the process and settlement of claims from IPF,
a comprehensive SOP is placed at Annexure-1.
H. Manner of inviting claims from investors by stock exchanges
i. In accordance with its bye-laws, rules or regulations, the stock exchange shall
publish a notice inviting the legitimate claimants to file claims against the defaulter
TMs within a specified period of time, called as the “specified period”.
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ii. The specified period for inviting legitimate claims against a defaulter TM, shall not
be less than one year from the date of declaration of default.
iii. The stock exchange shall publish the notice in all the editions of at least one
English national daily with wide circulation and in at least one regional language
daily with wide circulation, in regional language, based on the maximum
concentration of the clients of defaulter TM from a particular region or state.
iv. Apart from the public notice, SMS or e-mail messages would be sent to all clients
of the defaulter TM to inform them about the TM default and invite claims.
v. The notice calling for claims shall also be displayed on the premises of the stock
exchange (including Investor Service Centers) for the entire specified period as
well as on the websites of the stock exchange. The notice shall contain the
specified period, the maximum compensation limit for a single claim of an investor,
etc.
vi. The notice should emphasize or reiterate that clients who want to lodge their claim
shall submit the claim form along with all supporting documents to the stock
exchange.
vii. The stock exchanges shall ensure that all investors of such defaulter TMs have
been provided the information to lodge their claims.
I. Eligible Claims
i. The claims received against the defaulter TMs during the specified period shall be
eligible for compensation from the IPF.
ii. Where the clients have dealt through the authorized persons of the defaulting TM,
registered with the stock exchange, such clients will also be eligible for claims
against the defaulting TM for compensation from the IPF.
iii. If any eligible claim arises within three years from the date of expiry of the specified
period, such claims:
a) shall be considered eligible for compensation from IPF in case where the
defaulter TM’s funds are inadequate. In such cases, IPF Trust shall satisfy
itself that such claim could not have been filed during the specified period for
reasons beyond the control of the claimant.
b) shall not be considered eligible for compensation from IPF in case where the
surplus funds of the defaulter TM is returned to the defaulter TM. The same
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shall be borne by the stock exchange 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.
iv. Any claim received after three years from the date of expiry of the specified period
may be dealt with as a civil dispute.
v. The claims of only the investors or clients shall be eligible for compensation from
the IPF and in no case the claims of a TM or an associate of the TM of the stock
exchange shall be eligible for compensation out of the IPF.
vi. The claims of the investors or clients arising out of speculative transactions shall
not be eligible for compensation from the IPF.
J. Threshold limit for claims
i. The stock exchanges shall fix suitable per investor compensation limits, in
consultation with the IPF Trust and SEBI.
ii. The stock exchanges, in consultation with their IPF Trust, shall review and
progressively increase the amount of compensation available against a single
claim from an investor, at least once in every three years.
iii. The Stock Exchange shall disseminate the compensation limit fixed by them and
any change thereof, to the public through a Press Release and also through its
website.
K. Determination of legitimate claims from IPF for clients of the defaulter TM
i. The Stock Exchanges shall ensure that once a TM has been declared defaulter,
the claim(s) shall be placed before the Member Core Settlement Guarantee Fund
Committee (MCSGFC) for sanction and ratification. MCSGFC’s advice w.r.t.
legitimate claims shall be sent to the IPF Trust for immediate disbursement of the
amount.
ii. In case the claim amount is more than the coverage limit under IPF or the amount
sanctioned and ratified by the MCSGFC is less than the claim amount then the
investor will be at liberty to prefer for arbitration outside the exchange mechanism
or any other legal forum outside the exchange mechanism for claim of the balance
amount.
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L. Disbursements of claims from the IPF
i. The IPF Trust shall disburse the amount of compensation from the IPF to the
investor and such a compensation shall not be more than the maximum amount
fixed for a single claim of an investor.
ii. The compensation shall be disbursed to the investor from the IPF in case there is
a shortage of defaulter TM’s assets, subject to the maximum amount fixed for a
single claim of an investor.
iii. The IPF Trust need not wait for realization of assets of the defaulter TM for
disbursements of the claims;
iv. The stock exchange would do away with the practice of obtaining indemnity
undertaking from the clients.
v. The stock exchange shall ensure that the amount realized from the assets of the
defaulter TM is returned to the defaulter TM only after settling the following as per
the bye-laws of stock exchange: -
a) Claims of clients of TM received
b) Eligible claims of all stock exchanges of which the defaulter TM was a
member;
c) Claims of SEBI, if any;
d) Pending litigations against the defaulter TM;
e) Estimated value of claims of clients of TM yet to be received after the end of
specified period. This amount shall be estimated by stock exchanges and
kept for a maximum period of three years from the date of expiry of specified
period.
Any amount realized from assets of defaulter TM and being retained by stock
exchange shall be kept in a separate interest bearing account and in case the
funds remained unclaimed after the timeline the same shall be returned to the
defaulter TM.
M. Disclosures
i. The stock exchanges and depositories are advised to
a) Disclose the corpus of the IPF on its website and update the same on a
monthly basis.
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b) Disseminate its policy on processing investor claims from IPF on their website
including the compensation limit fixed by them per investor.
c) To frame FAQs on their policy on processing investor claims for easy
understanding of investors.
d) Give adequate notice (including a press release) to the investors before
implementing any amendment in the policy on processing of claims. In case of
any amendment in the policy on processing of investor claims, the same should
not be applicable to the TMs who have been disabled or suspended or
declared defaulter by the exchange prior to the effective date of implementation
of policy.
II. Investor Services Fund of Stock Exchanges
i. The stock exchange shall set aside at least 20% of the listing fees received for
ISF for providing services to the investing public.
ii. In order to have better management and control on the contributions and
utilization of ISF corpus, supervision of the same will rest with the Regulatory
Oversight Committee.
iii. The amount in ISF of the stock exchanges and any interest generated from this
ISF shall be utilized for the purpose as stated in the table below:
SN Particulars Utilization
1 ISF a) ISF can be utilized only for promotion of investor
education and investor awareness programmes
through seminars, lectures, workshops, publications
(print and electronic media), training programmes etc.
aimed at enhancing securities market literacy and
promoting retail participation in securities market;
b) At least 50% of the corpus should be spent at Tier II &
Tier III cities;
c) Cost of training of arbitrators;
d) In any other manner as may be prescribed or permitted
by SEBI in the interest of investors;
e) ISF shall not be charged against expenses incurred for
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sending SMS and E-mails as per provisions of the
SEBI circular no. CIR/MIRSD/15/2011 dated August
02, 2011.
2 Interest on Interest received on ISF shall be ploughed back to ISF.
ISF
III. Miscellaneous
i. If a stock exchange or a depository is wound up or derecognized or exits, then the
balance in the IPF and/or ISF lying un-utilised with the stock exchange and
depository shall be transferred to Investor Protection and Education Fund of SEBI
in terms of SEBI (Investor Protection and Education Fund) Regulations, 2009. The
funds shall be utilised for purposes of Investor education, awareness, research,
etc.
IV. Applicability
i. The provisions of this Circular shall come into effect from 30th day of issuance of
this circular.
ii. The existing provisions on IPF and ISF issued through various SEBI circulars
mentioned as under shall be rescinded with effect from the date of implementation
of this circular:
a) Circular No. SMD/RCG/PJ/268/96 dated January 19, 1996,
b) Circular No. SMD/Policy/Cir-15/2002 dated June 26, 2002,
c) Circular No. MRD/DoP/SE/Cir-38/2004 dated October 28, 2004,
d) Circular No. MRD/DoP/SE/Cir-21/2006 dated December 14, 2006,
e) Circular No. CIR/MRD/DP/06/2011 dated June 16, 2011,
f) Circular No. CIR/MRD/DP/28/2014 dated September 29, 2014,
g) Circular No. SEBI/HO/MRD/DP/CIR/P/2016/58 dated June 07, 2016,
h) Paragraph 2C of Circular No. SEBI/HO/DMS/CIR/P/2017/15 dated February
23, 2017,
i) Paragraph 1 of Circular No. SEBI/HO/MRD/DDAP/CIR/P/2020/16 dated
January 28, 2020 and
j) Paragraph 2C of Circular No. SEBI/HO/MRD1/ICC1/CIR/P/2021/625 date
September 02, 2021
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iii. All previous communications or directions by SEBI, through various letters or e-
mails, etc. pertaining to periodicity of review of IPF corpus, utilization of interest of
IPF, SOP indicating timeline for processing of claims, review of claims, etc.,
disclosure of IPF corpus and policy of processing of investor claims and
implementation of amendment of policy on processing of investor claims will stand
rescinded with effect from the date of implementation of this circular.
V. Stock Exchanges and Depositories are advised to:
i. take necessary steps and put in place necessary systems for implementation of
above.
ii. make necessary amendments to the relevant bye-laws, rules and regulations for
the implementation of the above.
iii. bring the provisions of this circular to the notice of market participants (including
investors) and also to disseminate the same on their website.
VI. This circular is issued in exercise of the powers conferred under Section 11(1) of
the Securities and Exchange Board of India Act 1992, read with Section 10 of
the Securities Contracts (Regulation) Act, 1956 and Section 26(3) of the
Depositories Act, 1996, to protect the interest of investors in securities and to
promote the development of, and to regulate the securities market.
VII. This circular is available on SEBI website at www.sebi.gov.in at “Legal Framework-
Circulars.”
Yours faithfully,
Hruda Ranjan Sahoo
Deputy General Manager
Tel no.: 022-26449586
Email: hrsahoo@sebi.gov.in
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Annexure 1
Standard Operating Procedure (SOP) for handling of Claims of Investors from
IPF of stock exchanges in case of default by TMs
SN. Action Process to be followed Maximum
Timeline
1. Disablement The stock exchange shall disable the TM T day
of the TM on account of trigger of SOP as per SEBI
Circular No.
SEBI/HO/MIRSD/DPIEA/CIR/P/2020/115
dated July 01, 2020.
2. Information The stock exchange shall issue the public T day
to Investors notice on its website
about
The stock exchange shall intimate T+1 day
disablement
investors through SMS and e-mail on their
of the TM
registered mobile no. and e-mail ID.
3. Pre-filled  The stock exchange shall provide a T+15 days
forms to be prefilled claim form to the client
sent to containing details of their funds and
clients securities balances with TM as per
providing information available with the stock
information exchange and trades data for 90 days
regarding prior to disablement of the TM.
balances  The prefilled form would also include
with the TM the details available with the exchange
such as PAN, address, e-mail ID,
mobile no, etc.
 The information w.r.t. funds and
securities balances to be provided to
the client would be provisional as it
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SN. Action Process to be followed Maximum
Timeline
would be without verification about its
correctness/ completeness.
 The exchange may mention that the
claims would be processed as per the
provisions of SEBI Circulars and
Regulations and as per Rules,
Regulations, Bye-laws of the stock
exchange.
 The stock exchange can send the pre-
filled claim forms to the clients on their
registered e-mail IDs, if available with
the exchange. The stock exchange
shall provide physical copies of the
claim forms on request of the investor.
4. Submission  The client would be required to fill claim T+75 days
of claim forms either online or offline, by making
forms by the necessary changes in the pre-filled
client of claim form and providing additional
defaulting details.
TM  Supporting documents such as relevant
bank statements, demat statements,
client ledger, etc. needs to be provided
along with the claim form.
 The client should provide the bank
account details for disbursal of the
amount at this stage itself in case the
claim is admitted.
 Exchange may seek additional
documents, if required, on case to case
basis.
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SN. Action Process to be followed Maximum
Timeline
5. Declaration  The exchange will declare the TM a T+120 days
of default of defaulter after completing the due
the TM process for declaring a TM as a
defaulter.
 Extension of timeline beyond T+120
days, if any, for declaration of default of
the TM would be subject to approval of
SEBI.
 The notice should also invite claims,
from those clients who have not
submitted their claims earlier, along
with all supporting documents.
6. Intimation to  The stock exchange shall issue the On the day of
investors Public Notice on default of the TM declaration of
about immediately on their website. default of the
declaration TM
of TM as a  The exchange shall also intimate the Within 1 day
defaulter. investors about the defaulter of the TM from the day
through SMS or e-mail on their of declaration
registered mobile no. or e-mail ID within of default of
1 day from declaration of default. the TM.
 The default notice shall also be Within 3 days
published in the newspapers i.e. in all from the day
the editions of at least one English of declaration
national daily with wide circulation and of default of
in at least one regional language daily the TM.
with wide circulation, in regional
language, based on the maximum
concentration of the clients of defaulter
TM from a particular region or state.
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SN. Action Process to be followed Maximum
Timeline
7. Processing,  The claim forms from clients received 1. All claims
auditing and either online or offline are to be received
settlement of scrutinized to ensure that the claims are within the
claims supported by relevant documents such timeline
as proof of payment, demat account mentioned at
statement, ledger account statement, point-4, if
etc. approved by
 In case of any additional documents are the IPFT, shall
required from the client, the same is to be settled
be intimated to the client immediately. within T+135
 The claims which are complete in all days.
respect are to be processed by verifying
the details with the Exchange’s records 2. All claims
viz. trades executed, unique client received after
codes, ledger supported by bank and the timeline
demat statements, etc. and arrive at mentioned at
admissibility or otherwise of the claims. point-4 above
 After processing of the claims by the but before the
exchange, the claims would be routed declaration of
to the auditors to assess the veracity the TM as
and genuineness of the claims defaulter, if
including admissibility of the claim. approved by
 After processing, auditing of the claims the IPFT, shall
and declaration of the TM as defaulter, be settled
the claims shall be placed before within 60 days
Member and Core Settlement from the date
Guarantee Funds Committee of such
(MCSGFC) for approval. declaration.
 In case the assets of the defaulter and /
or expelled TM are insufficient to meet 3. All claims
the admitted amount, the MCSGFC received on or
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SN. Action Process to be followed Maximum
Timeline
would recommend payment of investor after the date
claims to the Trustees of the Investor of declaration
Protection Fund Trust (IPFT) for of the TM as
payment out of the Investor Protection defaulter, if
Fund (IPF) approved by
 The IPFT to approve the payment of the the IPFT, shall
eligible claim amount to the client from be settled
the IPF. within 60 days
 The exchange will communicate the from the date
decision on claims to the clients post of receipt of
approval by the IPFT. such claims.
8. Request for In case the client is not satisfied with the Within 90
review of the processing of his claim, the client can file a days of
claim from review with the Member and Core receipt of
the client Settlement Guarantee Fund Committee intimation of
(First (MCSGFC) (first review). the decision of
Review) the IPFT from
the stock
exchange
The MCSGFC will review the claim and Within 60
inform the same to the client. days of
receipt of
review
application.
9. Request for In case the client is still not satisfied with Within 90
review of the the first review by the MCSGFC, the client days of
claim from can file the second review application with receipt of
the client the committee of Public Interest Directors intimation of
(Second (PIDs). The Committee of PIDs, wherever decision of the
first review by
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SN. Action Process to be followed Maximum
Timeline
Review) possible, shall consist of PIDs not forming MCSGFC
part of the MCSGFC.
The committee of PIDs would review the Within 60
claim and inform the same to the client. days of
receipt of the
review
application.
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