Sebi eases IPF norms in favour of brokers

Market regulator the Securities and exchange Board of India (Sebi) today relaxed its Investor Potection Fund (IPF) guidelines in favour of brokers by stipulating that surplus amount after satisfying all claims be returned to them.

As per the earlier rules, such amounts used to be credited to the IPF/Customer Protection Fund (CPF).

In a circular issued today, the Sebi said that stock exchanges had sought exemption from strict compliance of the earlier rules "on the ground that the residual amount remaining after satisfaction of claims against the defaulting broker should be refunded to the broker and not credited to the IPF/CPF".

Accordingly, the market regulator had modified the guidelines.

"The stock exchange shall ensure that the amount realised from the assets of the defaulter member is returned to the defaulter member after satisfying the claims of the stock exchange and Sebi in accordance with the bye-laws of the stock exchange," it said.

In case the concerned broker has membership of multiple stock exchanges, then the amount realised from the assets only after satisfying eligible claims of all the stock exchanges and the Sebi.

Besides, Sebi said the compensation shall be disbursed to the affected investor from the IPF/CPF in case there is a shortage of the defaulter broker's assets after its realisation.

As per the old guidelines, the IPF/CPF trust was expected to disburse the compensation to the investors as and when claims have been established against the defaulter.

The regulator also deleted an old provision which said that IPF/CPF need not wait for the auction of the defaulter member broker's card to realise the assets and the liabilities position of the broker before the disbursements of the claims.

The regulator extended the time for filing of claims by aggrieved investors to 90 days as against one month earlier.

As per the new guideline, if any eligible claims arise within three years from the date of expiry of the specified period such claims shall be borne by the stock exchanges without any recourse to the IPF/CPF provided that any claims are dealt as a civil dispute.

It stipulated that in "in cases where any litigations are pending against the defaulter member, the residual amount, if any, may be retained by the stock exchange until such litigations are concluded".

Under the old guidelines, the IPF/CPF trust was allowed to entertain claims even after the specified period if it was satisfied that the claims were not made because of unavoidable reasons by investors.