CIRCULAR
SEBI/HO/MRD/MRD-PoD-1/P/CIR/2024/71 May 30, 2024
The Managing Directors / Chief Executive Officers
All Recognized Stock Exchanges having Commodity Derivatives Segment
Dear Sir / Madam,
Sub: Comprehensive guidelines for Investor Protection Fund (IPF) and Investor
Services Fund (ISF) for Stock Exchanges having commodity derivatives segment
1. SEBI vide circulars dated September 26, 2016, June 13, 2017, March 14, 2018 and
October 22, 2021 has issued provisions for Investor Protection Fund and Investor Service
Fund for commodity derivatives segment. Further, circular on Price Dissemination through
SMS/Electronic Communication Facility was issued on August 30, 2016. These
aforementioned Circulars have been rescinded with issuance of Master Circular for
Commodity Derivatives Segment dated August 04, 2023. SEBI vide Circular dated May
30, 2023 has issued Comprehensive guidelines for Investor Protection Fund and Investor
Services Fund at Stock Exchanges and Depositories (excluding Commodity Derivatives
Exchanges) with inclusion of new provisions. Further, representations were received from
market participants with respect to propositions on Ease of Doing Business in commodity
derivatives segment. Considering these developments, the IPF and ISF guidelines for
commodity derivatives segment are being revised.
2. After due consultation with the stock exchanges, the new requirements have been framed
as placed in Annexure 1 to the Circular.
3. The Circular shall come into force from June 01, 2024.
4. The Exchanges are advised to:
4.1. take steps to make necessary amendments to the relevant bye-laws, rules and
regulations for the implementation of the same,
4.2. bring the provisions of this circular to the notice of the members of the Exchange and
also to disseminate the same on their website,
4.3. communicate to SEBI, the status of the implementation of the provisions of this
Circular.
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5. This Circular is issued in exercise of powers conferred under Section 11 (1) of the
Securities and Exchange Board of India Act, 1992, to protect the interests of investors in
securities and to promote the development of, and to regulate the securities market.
6. This Circular is issued with the approval of the competent authority.
7. This Circular is available on SEBI website at www.sebi.gov.in under the category
“Circulars” and “Info for Commodity Derivatives”..
Yours faithfully,
Naveen Sharma
General Manager
Market Regulation Department
Email: naveens@sebi.gov.in
Tel No. +91-22-2644 9709
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Annexure 1
A. Guidelines for Investor Protection Fund (IPF)
1. Constitution and Management of the IPF:
1.1. All stock exchanges shall establish an IPF. The IPF of the stock exchange shall be
administered through separate Trust created for the purpose.
1.2. The IPF Trust of the stock exchange shall have a maximum 5 trustees as under:
1.2.1. Three Public Interest Directors (PIDs);
1.2.2. One representative from investor associations recognized by SEBI; and
1.2.3. Chief Regulatory Officer or Compliance Officer of the stock exchange.
1.3. The maximum tenure of a trustee (excluding the Chief Regulatory Officer or
Compliance Officer of the stock exchange, whose trusteeship would be co-terminus
with the service) shall be five years or as specified by SEBI.
1.4. The stock exchanges shall provide the secretariat for the IPF Trust.
1.5. The stock exchanges shall ensure that the funds in the IPF are well segregated from
that of the Exchange and that the IPF is immune from any liability of the stock
exchange. Further, supervision of utilization of IPF and interest or income from IPF
will rest with the IPF Trust.
2. Contribution to the IPF: The following contributions shall be credited to the IPF:
2.1. One (1) percent of turnover fee charged by the stock exchange from its trading
members or ` Ten Lakh, whichever is higher, in a financial year;
2.2. Interest or income received out of any investments made from the IPF.
2.3. All the penalties levied and collected by the stock exchange;
2.4. Any other contribution as may be specified by SEBI from time to time.
3. Manner of inviting claims from the Investors
3.1. In accordance with its byelaws, rules or regulations, the Exchange shall publish a
notice inviting legitimate claimants to file claims against the defaulter trading member
within a prescribed period of time called as the ‘specified period’.
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3.2. The specified period for inviting legitimate claims against a defaulter-trading member,
shall not be less than one year from the date of declaration of default.
3.3. The stock exchange shall publish the notice in following newspapers:
3.3.1. all editions of at least one English national daily with wide circulation;
3.3.2. at least one regional language daily with wide circulation, in regional language,
based on the maximum concentration of the clients of defaulter trading member
from a particular region or state.
3.4. In addition to the public notice, the stock exchange shall send SMS and/or e-mails to
all clients of the defaulter-trading member, informing them about the default of trading
member and inviting claims in this regard.
3.5. The public notice calling for claims shall be displayed on website of stock exchange
as well as on premises of stock exchange/s (including Investor Service Centers) for
the entire specified period.
3.6. The public notice shall contain details of specified period, maximum compensation
limit for a single claim of an investor, supporting documents required for filing claim
and all other relevant information in this regard.
4. Eligibility of Claims:
4.1. The claims received against the defaulter-trading member during the specified period
shall be eligible for consideration for compensation from IPF.
4.2. If any eligible claim arises within three years from the date of expiry of the specified
period, such claim shall be considered eligible for compensation from IPF, in case
where the defaulter member’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.
4.3. Any claim received after three years from the date of expiry of the specified period,
shall be dealt with as a civil dispute.
4.4. The claims of only investors shall be eligible for compensation from IPF and in no
case, the claims of a trading member or an associate of the trading member of the
stock exchange, shall be eligible for compensation from the IPF.
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4.5. The claims of the investors or clients arising out of speculative transactions shall not
be eligible for compensation from the IPF.
5. Threshold limit for Claims:
5.1. The stock exchange shall fix suitable compensation limit for single investor, in
consultation with IPF Trust and SEBI.
5.2. The stock exchange, 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.
5.3. The stock exchange shall disseminate the compensation limit fixed by them and any
change thereof, to the public through a Public Notice and through its website.
6. Determination of Legitimate Claims
6.1. The Stock Exchanges shall ensure that once a trading member has been declared
‘defaulter’, the claim(s) shall be placed before the Member Core Settlement
Guarantee Fund Committee (MCSGFC) for sanction. MCSGFC’s recommendation
w.r.t. legitimate claims, shall be sent to IPF Trust immediately for expeditious disbursal
of claim amount.
6.2. In case the claim amount is more than the coverage limit under IPF or the amount
sanctioned by the MCSGFC is less than the claim amount, then the investor/s will be
at liberty to prefer for arbitration outside the exchange mechanism / any other legal
forum outside the exchange mechanism, for claim of the balance amount.
6.3. A detailed Standard Operating Procedure (SOP), stating the process and timelines
for declaration of default of a trading member, processing of investor claims out of IPF
and review of claim is placed at Annexure 2.
7. Disbursements of claims from the IPF:
7.1. The IPF Trust shall disburse the amount of compensation from IPF to the investors
and such compensation shall not be more than the maximum amount fixed for a single
claim of an investor.
7.2. The compensation shall be disbursed to the investor from IPF in case there is a
shortage of defaulter trading member assets after its realization, subject to the
maximum amount fixed for a single claim of an investor.
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7.3. The IPF Trust need not wait for realization of assets of the defaulter-trading member
for disbursements of the claims. Upon receipt of recommendation from MCSGFC
committee, for payment, the IPF Trust shall take necessary steps for disbursement of
amount at the earliest. However, upon realisation of assets of the defaulter-trading
member, the aforementioned amount so disbursed from IPF, shall be credited back
to IPF.
7.4. The stock exchange would do away with the practice of obtaining indemnity
undertaking from the clients.
7.5. Any amount realized from assets of defaulter trading member and not yet paid to
investors / claimed by investors, shall be kept in a separate interest bearing account,
for a period of three years after expiry of specified period. In case these funds remain
unclaimed for three years after expiry of specified period, the same shall be returned
to the defaulter trading member.
Provided, that in cases where any litigations are pending against the defaulter
member, the residual amount, if any, may be retained by the exchange until such
litigations are concluded.
7.6. The stock exchanges shall ensure that the amount realized from the assets of the
defaulter-trading member is returned to the defaulter-trading member only after
settling the claims of stock exchanges, clearing corporations and SEBI as per the bye-
laws of stock exchange.
8. Deployment of funds of IPF
8.1. Investment of funds of IPF will be as per relevant provisions of the Indian Trust Act
1882 / Maharashtra Public Trust Act and Section 11 (5) of Income Tax Act, 1961. The
stock exchanges shall ensure that the investment of Trust funds is done with utmost
caution and prudence.
8.2. Funds of the IPF Trust shall be invested in instruments such as Central / State
Government securities, fixed deposits of scheduled banks and any such
instruments which are allowed as per the investment policy approved by the Trustees
of IPF Trust.
8.3. Additionally, 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, highest degree of safety and least market risk.
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9. Utilisation of IPF: The amount of IPF shall be utilised to meet the legitimate investment
claims of the clients of the defaulting trading members.
10. Utilization of Interest or Income earned on IPF: The interest or income earned on IPF shall
be utilized for purposes as stated below:
10.1. Investor education and awareness: The stock exchange may utilize such amount
towards promotion of investor education and awareness programmes to
encourage participation in the commodity derivatives market in the following
manner:
10.1.1. seminars, lectures, workshops, publications (print and electronic media),
training programs (including virtually), etc.
10.1.2. investor-education focused content on social media platforms and media
sharing platforms like Facebook, Twitter, Youtube, Instagram, LinkedIn etc.
10.1.3. Radio and TV advertisements;
10.1.4. investor-education focused mobile application (not more than one mobile
application may be launched by a stock exchange);
10.1.5. Kiosks in trade fair, book fair etc.
10.1.6. Price dissemination through SMS/Electronic Communication facility
10.2. Capital expenditure of ISC: Capital expenditure would be permissible w.r.t. setting
up of Investor Service Centre (ISC) However, no expenditure incurred on product
promotion, shall be utilised from IPF / interest / income of IPF, in any manner.
10.3. Research activities:
10.3.1. The stock exchanges shall be permitted to utilize IPF interest income for
undertaking research activities related to commodities market, provided every
such activity / project is undertaken only after obtaining prior written approval
of the trustees of the IPF Trust. Such research may also be undertaken on
commodities / goods which are not notified under Section 2(bc) of SCRA,
1956.
10.3.2. The trustees of IPF Trust would, inter alia, consider and record the reasons,
relevance and stated objectives of the research activity / project while
according approval. Further, the Board of the stock exchange shall be apprised
of the research programs / activities being undertaken at least once in half year
of a given financial year.
10.3.3. The amount apportioned for research activity / project shall not be more than
10% of the interest amount of IPF. IPF shall frame a policy towards identifying
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/ recognising public and private academic institutions, professional bodies,
trade (physical market) associations and industry bodies/ chambers through/
with whom such Research activities shall be undertaken/ organised/
sponsored.
10.4. Digital media: Stock exchange may set up investor-focused website and
operational expenditure shall be permissible for maintaining the investor-focused
website.
10.5. Administrative expenses: To meet the expenses related to dedicated employees
of IPF Trust, administration of Investor Service Centers (ISCs), other
administrative and statutory expenses such as applicable taxes, audit fees etc., a
maximum of 10% may be utilized in a financial year. In case the expenses exceed
the above limit, such excess expenses shall be borne by the stock exchange.
10.6. Only the interest amount credited in the last quarter of the financial year may be
carried forward to next financial year for utilisation.
10.7. Apart from provision stated in Para 10.6 above, in case of non-utilization of such
amount in the same financial year, the same shall be ploughed back to IPF.
10.8. In any other manner, as prescribed / permitted by SEBI, from time to time.
11. Review of IPF Corpus:
11.1. The stock exchanges shall conduct half-yearly review within one month from the
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.
12. Disclosures: The stock exchanges are advised to:
12.1. Disclose 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, in the Monthly
Development Report of the stock exchange.
12.2. Disclose the corpus of the IPF on its website and update the same on a monthly
basis.
12.3. Disseminate its policy on processing investor claims from IPF on their website
including the compensation limit fixed by them per investor.
12.4. To frame FAQs on their policy on processing investor claims for easy understanding
of investors.
12.5. 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
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amendment in the policy on processing of investor claims, the same should not be
applicable to the trading members who have been disabled or suspended or
declared defaulter or expelled by the exchange prior to the effective date of
implementation of the policy.
13. Miscellaneous
13.1. In case the stock exchange is wound up, derecognised, or exits, then the balance
amount in the IPF and / or ISF, shall be transferred to Investor Protection and
Education Fund of SEBI in terms of SEBI (Investor Protection and Education Fund)
Regulations, 2009.
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B. Guidelines for Investor Services Fund (ISF)
1. The Stock Exchanges are mandated to set up Investor Service Fund (ISF).
2. In order to have efficient management of ISF, Regulatory Oversight Committee (ROC)
of the stock exchange shall oversee the contribution to ISF and its utilization.
3. The stock exchange shall maintain separate bank account for maintaining corpus of the
ISF and such funds should not be co-mingled with any other fund(s) of the stock
exchange and shall not be used for any purpose except for those permitted in this
Circular.
4. Pending utilisation of funds of ISF, stock exchanges shall be permitted to deploy such
funds in fixed deposits of scheduled banks and any such instruments which are allowed
as per the investment policy approved by the (ROC) of the stock exchange.
5. Contribution to ISF:
5.1. The stock exchange shall contribute One (1) percent of the turnover fees charged
by the stock exchange from its members, on monthly basis. Such contribution shall
be made within 7 days of the end of the month, subject to minimum of ` Ten Lakh of
such contribution in a financial year.
5.2. The stock exchange shall plough back the income earned on ISF, if any, to the ISF
within one month from the end of September and March of each year.
6. Utilisation of ISF: The stock exchange shall be permitted to utilize the corpus of ISF for
the following:
6.1. Conducting various investor education programs, investor awareness programs,
and capacity building programs (including virtually);
6.2. Maintenance of all price ticker boards installed by the respective stock exchanges;
6.3. ISF shall not be charged against expenses incurred for sending SMS and E-mails;
6.4. In any other manner as prescribed / permitted by SEBI from time to time.
7. Investor Service Center: The Investor Service Centers (ISC) shall provide following
basic minimum facilities from ISF:
7.1. Two financial daily newspapers with at least one in the regional language of the
place where the ISC is situated. In case, the financial newspaper is not available in
the regional language of the place, any leading newspaper in that regional language
shall be provided.
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7.2. Facility for receiving/recording investor complaints in both physical and electronic
form. One dedicated staff at ISC will register the complaints and counsel the
investors. The status of complaints shall be maintained and updated in electronic
form.
7.3. ISCs shall assist the investors in the dispute resolution process. These centres shall,
inter alia, provide investors the required documents or details, if any, in this regard.
7.4. ISC shall be able to accommodate 5-6 persons at a time.
7.5. Other infrastructure facilities such as telephone, photocopier, printer, scanner,
furniture etc.
7.6. A library having information/documents shall be maintained both in physical and
electronic form, on the following subjects for the benefit of investors:
7.6.1. Relevant Acts & Rules;
7.6.2. Regulations, Circulars or Master Circulars, Guidelines, etc. issued by SEBI;
7.6.3. Rules, Bye-laws, Regulations, Circulars and Master circulars issued by stock
exchanges and clearing corporations;
7.6.4. Educational material on various areas of commodity derivatives markets
including published commodity related materials of the stock exchanges etc.;
7.6.5. Brochures detailing the rights and obligation of investors while dealing with
brokers in commodity markets;
7.6.6. FAQ's to disseminate clarity on various terms, process etc. in commodity
derivatives segment.
In case of receipt of specific request for physical copies of the said documents, the
same shall be provided at a minimal cost, else priority may be given to sharing of such
information electronically.
7.7. A database of visitors (including investors) for future correspondence, whenever
required.
7.8. Dummy terminals to display the prices of the commodities listed on the exchange
on real-time basis, to enable investors watch the price movements of the
commodities.
7.9. To conduct various investor education and investor awareness programs through
seminars, lectures, workshops, publications (print and electronic media), training
programs etc. aimed at enhancing securities market literacy and promoting
participation in the commodity derivatives market.
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7.10. In any other manner as may be prescribed or permitted by SEBI from time to time.
8. In order to ensure efficient handling of investors complaints, stock exchanges shall ensure
that officials at ISCs possess the following training, information and NISM certification,
wherever available:
8.1. Regular training on how to counsel / guide the investors while lodging their
complaints (including lodging of complaints on SCORES platforms), promotion of
investor education and awareness to enhance securities market literacy etc.
8.2. Overview of commodity derivatives market, functions and operations of Stock
Exchanges, Clearing Corporations, Stock Brokers etc.
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Annexure 2
Standard Operating Procedure (SOP) for handling of Claims of Investors from IPF of
stock exchanges in case of default by trading members
Table A
S No. Action Process to be followed Maximum Timeline
Disablement of the The stock exchange shall disable the T day
1
trading member trading member on account of trigger
of SOP as per Section VIII, Para 73
of SEBI Master Circular No.
SEBI/HO/MIRSD/MIRSD-PoD-
1/P/CIR/2023/71 dated May 17, 2023
Information to The stock exchange shall issue the T day
2
Investors about public notice on its website
disablement of the The stock exchange shall T+1 day
trading member intimate investors through SMS and e-
mail on their registered mobile no. and
e-mail ID.
Pre-filled forms to The stock exchange shall provide a T+15 days
3
be sent to clients prefilled claim form to the client
providing containing details of their funds and
information securities balances with trading
regarding balances member as per information available
with the trading with the stock exchange and trades
member data for 90 days prior to disablement of
the trading member.
The prefilled form would also include
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
would be without verification about its
correctness/ completeness.
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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 of claim The client would be required to fill claim T+75 days
forms by the client forms either online or offline, by making
of defaulting trading necessary changes in the pre-filled
member claim form and providing additional
details.
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.
The stock exchange may seek
additional documents, if required, on
case to case basis.
Declaration of The stock exchange will declare the T+120 days
5
default of the trading member a defaulter after
trading member completing the due process for
declaring a trading member as a
defaulter.
Extension of timeline beyond T+120
days, if any, for declaration of default of
the trading member would be subject to
approval of SEBI.
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Intimation to The stock exchange shall issue the On the day of
6
investors about Public Notice on default of the trading declaration of
declaration of member immediately on their website. default of the
trading member as trading member
a defaulter The stock exchange shall also intimate Within 1 day from
the investors about the defaulter of the the day of
trading member through SMS or e-mail declaration of
on their registered mobile no. or e-mail default of the
ID within 1 day from declaration of trading member.
default.
The default notice shall also be Within 3 days from
published in the newspapers i.e. in all the day of
the editions of at least one English declaration of
national daily with wide circulation and default of the
in at least one regional language daily trading member.
with wide circulation in regional
language, based on the maximum
concentration of the clients of defaulter
trading member from a particular region
or state.
The notice should also invite claims,
from those clients who have not
submitted their claims earlier, along
with all supporting documents.
Processing, The claim forms from clients received All claims
7
auditing and either online or offline are to be received within the
settlement of claims scrutinized to ensure that the claims are timeline mentioned
supported by relevant documents such at point-4, if
as proof of payment, demat account approved by the
statement, ledger account statement, IPFT, shall be
etc. settled within
T+135 days.
In case of any additional documents are
required from the client, the same is to All claims
be intimated to the client immediately. received after the
timeline mentioned
The claims which are complete in all at point-4 above
respect are to be processed by but before the
verifying the details with the declaration of the
Exchange’s records viz. trades trading member
executed, unique client codes, ledger as defaulter, if
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supported by bank and demat approved by the
statements, etc. and arrive at IPFT, shall be
admissibility or otherwise of the claims. settled within 60
days from the date
After processing of the claims by the of such declaration.
exchange, the claims would be routed
to the auditors to assess the veracity All claims
and genuineness of the claims received on or after
including admissibility of the claim. the date of
declaration of the
After processing, auditing of the claims trading member as
and declaration of the trading member defaulter, if
as defaulter, the claims shall be approved by the
placed before Member and Core IPFT, shall be
Settlement Guarantee Funds settled within 60
Committee (MCSGFC) for approval. days from the date
In case the assets of the defaulter and of receipt of such
/ or expelled trading member are claims.
insufficient to meet the admitted
amount, the MCSGFC would
recommend payment of investor claims
to the Trustees of the Investor
Protection Fund Trust (IPFT) for
payment out of the Investor Protection
Fund (IPF).
The IPFT to approve the payment of the
eligible claim amount to the client from
the IPF.
The exchange will communicate the
decision on claims to the clients post
approval by the IPFT.
Request for review In case the client is not satisfied with Within 90 days of
8
of the claim from the processing of his claim, the client receipt of intimation
the client (First can file a review with the Member of the decision of
Review) and Core Settlement Guarantee the IPFT from the
Fund Committee (MCSGFC) (first stock exchange.
review).
The MCSGFC will review the claim and Within 60 days of
inform the same to the client. receipt of review
application
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Request for review In case the client is still not satisfied Within 90 days of
9
of the claim from with the first review by the MCSGFC, receipt of intimation
the client (Second the client can file the second review of decision of the
Review) application with the committee of Public first review by
Interest Directors (PIDs). MCSGFC.
The Committee of PIDs, wherever
possible, shall consist of PIDs not
forming part of the MCSGFC.
The committee of PIDs would review Within 60 days of
the claim and inform the same to the receipt of the
client. review application.
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