As the name suggests, an IPF is a fund set up Inter-connected Stock Exchange (ISE) to protect and compensate the investors in case a member/ broker of the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE) or other stock exchanges is unable to pay the money due for the investments made by them. How is money collected for IPF? Brokers are charged one percent of their turnover or Rs 25 lakh, whichever is less in the financial year, as a fee by the stock exchanges. Also, all the penalties such as deliver default fine and other fines charged and collected other than settlement related penalties, by various exchanges become a part of the IP fund. Around 12 brokers were declared defaulters by exchanges since 2017. The claims paid/ provided by NSE had been increasing year by year. In 2015-16 it was Rs. 15.83 Crores, then in 2018-19 it was highest till now in the last 5 years- Rs. 106.21 Crores and the balance of IPF was decreasing day by day. It was a major concern for the investors and some action was much required. So, SEBI decided to increase the IPF of NSE from Rs. 550 Cr to Rs. 1500 Cr to safeguard the interests of the investors. The most recent example of defaulters are The Allied Financial and IL&FS cases. They sold Nifty 5000 call option in December expiring in June. They also kept its mutual fund units as a collateral and gained a premium of Rs. 380 Crores. But later on, Dalmia Bharat Group alleged that the units of the group owned by the company were transferred in a fraudulent manner so that the shares can be used by the other as a security. IPF can be claimed in such cases, and thus the investors interests are safeguarded. SEBI has also advised both NSE and BSE to operationalize a thorough Standard Operating Procedure (SOP) in order to improve the effectiveness of the IPF. SOP should also be introduced so that the processing of claims made by the investors and the declaration of the defaulter was done on time. SEBI is also formulating a formula to increase IPF every year, since the number of brokers defaulting are also increasing with time. It is being recommended that SEBI should consider a proper metrics to decide the corpus of IPF and that it should be directly linked to the volume of stocks traded in the stock market. If SEBI decides to adapt this technique for the corpus of IPF, it would create a meaningful and effective formula for the calculation and it won’t just be any random number selected by the regulators. The step taken by SEBI was a much needed one. The formula to increase IPF should be released soon, as it would take care and protect the interest of the investors. Also SEBI has instructed NSE to transfer Rs. 1200 Crores in the IPF, and the rest Rs 300 Crores to be transferred to Investor Protection Fund Trust (IPFT) to be used to meet any shortfalls in IPF. Thank you.
Regards,
Piyush Agarwal,
Kautilya,
IBS Mumbai.
Comments
Good Read.
ReplyDeleteGood move
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