SEBI Issues Guidelines for Investor Protection Fund in Commodity Market

The Securities and Exchange Board of India (SEBI) has introduced detailed guidelines for the Investor Protection Fund (IPF) and Investor Services Fund (ISF) managed by stock exchanges and depositories in the commodity derivatives market. These guidelines, effective from June 29, 2023, aim to protect investors and promote financial literacy across the market.

Structure and Governance

SEBI has mandated that the IPF be managed through separate trusts, each consisting of five trustees: three Public Interest Directors, a representative from investor associations, and a compliance officer in order to ensure independent oversight and better management of the funds. 

Funding Mechanisms

The guidelines specify that exchanges must contribute 1% of their quarterly listing fees, the entire interest earned on security deposits, and penalties collected from trading members. Additionally, transaction-based charges imposed on trading members also contribute to the IPF. Whereas, Depositories are required to contribute 5% of their annual profits from operations, along with penalties from participants, and income from investments made using the IPF corpus. This diversified funding approach will inflow resources to the IPF, maintaining its financial health.

Utilization of Funds

The primary use of the IPF includes covering claims from clients of defaulting trading members, providing interim relief to investors, and supporting awareness initiatives. 

Claim Settlement 

SEBI’s Standard Operating Procedure (SOP) for settling investor claims ensures an efficient process. If a trading member defaults, investors are promptly notified and issued pre-filled claim forms within 15 days. Thereafter, submitting the necessary documents within 75 days is required for the claims to be verified and settled within 135 days. 

Investor Services Fund (ISF)

The ISF focuses on promoting awareness for investors. SEBI mandates that at least 20% of listing fees be allocated to the ISF, which will fund seminars, workshops, and training programs aimed at working on market literacy. Additionally, at least 50% of the ISF corpus has to be spent on activities in Tier-II and Tier-III cities, ensuring that financial literacy programs reach a broader audience.

Conclusion: SEBI’s new guidelines for the IPF and ISF mark a significant start toward strengthening investor confidence and participation in the commodity markets. By ensuring ] protection and educational resources, SEBI aims to create a more secure and informed trading environment for the stakeholders involved.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.