Wednesday, 14 March 2018

Clarification to circular pertaining to Investor Protection Fund and Investor Service Fund

The Securities and Exchange Board of India vide its circular dated March 14, 2018 clarified the Circular pertaining to Investor Protection Fund (IPF) and Investor Service Fund (ISF).

SEBI vide circular no. CIR/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017, has issued guidelines covering broad areas of Investor Protection Fund and Investor Service Fund.

Subsequently, SEBI has received representations from the national commodity derivatives exchanges (NCDEs) for clarifications and consideration of their requests with respect to some of the clauses of the said circular. After examination thereof, the following clarifications are being issued.

i.    It is clarified that the unutilized IPF Interest Income accruing during a specific financialyear can be carried forward to the next financial year to enable effective utilization of such money by the exchanges during such extended period.

ii.      NCDEs are hereby permitted to utilize IPF interest income for undertaking research activities related to commodities market, provided every such research activity / project can be undertaken only after obtaining prior written approval of the trustees of the IPF Trust, who would inter alia, record the reasons, relevance and stated objectives of the research project while according approval to such activity/ project. Further, the Board of the exchange may be apprised of the research programs / activities being undertaken at least once in every quarter or half year of a given financial year.

        There will be an overall cap on the total amount, not more than 10% of the interest amount of IPF which can be spent on Research activities related to commodities market. IPF shall frame a policy towards identifying / 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.

iii.      Clause 7.3 of the circular no. CIR/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017 provided that the IPF of the exchange shall be utilized for the clients of SEBI registered members. In this connection, it is clarified that exchanges may also use the IPF of the exchange for meeting their liabilities towards the clients of members not registered with SEBI, if the same is allowed under the byelaws of the exchange.

iv.       SEBI has prescribed certain expenditures which are to be met utilizing the ISF and not IPF. However since ISF is of recent origin, its corpus may be inadequate. NCDEs have therefore requested to permit utilizing interest on IPF in lieu of ISF for expenditures meant only for ISF. Accordingly, the NCDEs have been granted 3 years period starting April 1st, 2018 to permit utilizing interest on IPF for activities of ISF also.

The provisions of this circular shall come into effect immediately.

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