SEBI IPF-ISF Guidelines 2024: 10 Rules for Exchanges

What SEBI changed and why it matters

SEBI has issued comprehensive guidelines for the establishment and management of the Investor Protection Fund (IPF) and Investor Services Fund (ISF). The framework is aimed at standardising governance, funding, disclosures, and claim processing across market institutions. A central theme is that investor protection money must be ring-fenced from the liabilities of stock exchanges and depositories. SEBI has also detailed operational processes for declaring a trading member as a defaulter and handling investor claims. The rules spell out where the funds can be invested and how administrative costs should be met. Another focus is on investor education and the availability of Investor Service Centers (ISCs).

Circulars, dates, and scope

SEBI issued a circular on May 30, 2024 for stock exchanges with commodity derivatives segments. This circular states that the guidelines come into effect from June 1, 2024, and requires exchanges to amend rules, inform members, and report implementation status to SEBI. SEBI has also issued a circular dated May 30, 2023 that merged and revised IPF and ISF guidelines at stock exchanges and depositories, with effectiveness stated as June 29, 2023. The May 30, 2023 circular is referenced as Circular No. SEBI/HO/MRD/MRD-PoD-3/P/CIR/2023/81. The May 30, 2024 circular for commodity derivatives carries Circular No. SEBI/HO/MRD/MRD-PoD-1/P/CIR/2024/71. The provided material also references that certain earlier circulars were rescinded with issuance of the Master Circular for Commodity Derivatives Segment dated August 04, 2023.

Mandatory IPF creation and ring-fencing

Under the revised approach, all stock exchanges and depositories are required to establish an IPF. The IPF must be administered through a separate trust created specifically for that purpose. SEBI’s guidelines emphasise segregation, stating that IPF funds should be well separated and “immune” from liabilities of the stock exchange or depository. Supervision of utilisation of the IPF and any interest or income from it rests with the IPF Trust. Stock exchanges and depositories must provide secretariat support to their IPF Trusts, aligning governance with operational accountability.

IPF Trust composition and trustee tenure

SEBI has standardised the Trust structure: the IPF Trust must have five trustees. The trustees include three Public Interest Directors (PIDs), one representative from investor associations recognised by SEBI, and the exchange’s Chief Regulatory Officer or Compliance Officer. The maximum tenure for a trustee is five years, excluding the Chief Regulatory Officer or Compliance Officer whose trusteeship is co-terminus with their service. This design is meant to balance independence (through PIDs and investor representation) with operational continuity (through a senior regulatory or compliance executive).

How exchanges and depositories contribute to the IPF

The guidelines specify recurring contributions and additional inflows into the IPF. For stock exchanges, the text includes a requirement to contribute 1% of listing fees received on a quarterly basis. It also references that stock exchanges must transfer penalties collected from trading members into the IPF, and in older stipulations includes transfer of the entire interest earned on certain security deposits kept by issuer companies. For depositories, SEBI’s revised framework states a contribution of 5% of profits from depository operations every year, along with fines and penalties recovered from depository participants and other users. The circulars also state that any interest or income generated from investments made from the IPF becomes part of the fund and can be used only for purposes permitted under the guidelines.

What the IPF can be used for

The primary purpose of the IPF, as stated, is to compensate valid investor claims related to defaulting trading members. The material also notes that the IPF can be used to pay interim relief to investors and promote investor education. For the commodity derivatives segment circular, income generated from the IPF corpus may be used for investor education and awareness programmes, setting up Investor Service Centers, maintaining investor-focused websites, and conducting research activities, subject to approval of the IPF Trust. SEBI’s framing keeps the corpus itself protected while allowing income from the corpus to support investor services and education.

Claims: notices, timelines, and disbursement process

SEBI has laid down processes for inviting and processing investor claims when a trading member defaults. Exchanges are required to publish notices inviting claims against a defaulter trading member, and the notice period should be at least one year from the declaration of default as per the provided text. These notices must be widely disseminated in national and regional newspapers, and affected clients should be informed through SMS and email. For commodity derivatives segment exchanges, the claims process includes assessment by the Member Core Settlement Guarantee Fund Committee (MCSGFC) and subsequent disbursal by the IPF Trust. The circular also states that disbursement should occur without waiting for realisation of the defaulter’s assets, and that any recovered assets are returned to the IPF. The material further notes that the circular eliminates the need for indemnity undertakings from clients for claims.

Compensation limits and periodic reviews

The commodity derivatives segment circular states that maximum compensation per investor is predetermined and reviewed every three years. Separately, the older stipulation referenced in the material sets a floor for compensation: it should not be less than INR 1 lakh for major stock exchanges such as BSE and NSE, and INR 50,000 for other stock exchanges. While the newer text emphasises triennial review, the older reference highlights a minimum protection benchmark for certain exchanges.

IPF investments and handling of administrative expenses

SEBI’s revised guidelines include permissible investments for IPF funds, with a stated focus on safety and prudence. The investments cited include Central Government securities and fixed deposits of scheduled banks, along with any instruments allowed under an investment policy approved by the governing boards of the stock exchange or depository. The commodity derivatives segment circular adds that permissible investments should follow a diversification strategy to mitigate risk. Administrative expenses of the IPF Trust and ISCs can be covered from income generated by the IPF, but excess costs beyond permitted levels must be borne by the stock exchange, as stated in the commodity derivatives segment guidance.

Reviews, reporting, and public disclosures

SEBI requires regular monitoring of the IPF corpus to ensure adequacy. The stock exchanges and depositories must conduct half-yearly reviews by the end of March and September each year to assess whether the IPF corpus is adequate, and enhance it appropriately if it is not. The material also states that the balance available in the IPF at the end of each month and the utilisation during the month must be reported to SEBI in Monthly Development Reports. In addition, stock exchanges must disclose balance and utilisation details regularly, and make publicly accessible policies for processing investor claims along with FAQs.

ISF: oversight, minimum contributions, and spending focus

SEBI’s framework also mandates setting up an Investor Services Fund, overseen by a Regulatory Oversight Committee (ROC). The ISF should have a separate bank account and is to be utilised for investor education and awareness programmes and maintaining price ticker boards, as stated for commodity derivatives segment exchanges. The material notes that contributions to ISF include a percentage of members’ turnover fees, with a minimum annual contribution of INR 10 lakh. It also states that income earned on the ISF should be reinvested into the fund. Separately, another guideline referenced in the material requires stock exchanges to set aside at least 20% of listing fees for ISF-related services to the investing public. The text further states that at least 50% of the ISF corpus should be spent in Tier II and Tier III cities, and includes training arbitrators as an eligible ISF expense.

What happens if an exchange or depository exits

SEBI’s guidelines address the end-state treatment of unutilised balances. If a stock exchange or depository is wound up, derecognised, or exits, any unutilised balance in the IPF and ISF must be transferred to SEBI’s Investor Protection and Education Fund. This ensures that investor protection resources remain within the regulatory ecosystem and do not revert to the institution’s general funds.

Key facts at a glance

Market impact: what changes for investors and intermediaries

The framework increases process clarity for investors seeking compensation when a trading member defaults, especially through requirements on public notices and direct communication via SMS and email. Exchanges and depositories face clearer obligations on corpus maintenance through half-yearly adequacy reviews and periodic reporting. The explicit ring-fencing of IPF funds from institutional liabilities is designed to protect the corpus and avoid commingling. Intermediaries and members may see more structured contributions through turnover-fee-linked requirements and stated minimums like INR 10 lakh for ISF contributions. The removal of indemnity undertakings for claims in the commodity derivatives segment circular can reduce procedural friction for investors filing claims.

Analysis: why governance and disclosures are central to the framework

SEBI’s approach relies heavily on governance structures and repeatable processes. The five-member trust structure with public interest directors and an investor association representative is intended to reduce conflicts and improve oversight of how funds are deployed. The insistence on permissible investments such as government securities and bank fixed deposits reflects a capital preservation approach consistent with the purpose of investor protection funds. Frequent disclosures and half-yearly reviews shift IPF and ISF management from a reactive activity to a monitored compliance area. The requirement to publish policies and FAQs for claims processing signals a push toward predictable, investor-facing service standards.

Conclusion

SEBI’s updated IPF and ISF guidelines tighten governance, specify funding sources, and standardise how claims are invited, processed, and paid. With effective dates and circular references clearly set out, exchanges and depositories are expected to amend rules, communicate changes to members, and report implementation. The next operational step under the framework is consistent compliance through periodic reviews, mandated disclosures, and running investor service initiatives through ISCs under the oversight structures prescribed by SEBI.