SEBI Directs NSE to Triple Investor Protection Fund

​SEBI (Securities and Exchange Board of India) has instructed NSE (National Stock Exchange of India) to triple the size of its investor protection fund.

The investor protection fund is used to support investor refunds in the event of a broker default, paying out up to INR 2.5 million per investor.

NSE has around INR 5.85 billion (USD 79 million) in its investor protection fund, compared to INR 7.5 billion at BSE India. NSE has about 90 percent higher trading volumes than BSE.

SEBI has asked NSE to increase the size of its fund to INR 15 bilion "in order to protect the interests of investors in light of recent broker defaults."

The regulator is said to be linking the size of the fund with trading volumes. SEBI says it will review the adequacy of NSE's investor protection fund on a half-yearly basis and that incremental contributions will be made "if required".

"NSE is focused and committed to further strengthening investor protection through a variety of measures, including focussed investor education, enhanced broker supervision and surveillance in view of the recent defaults of Trading Members," the exchange said in a statement.

NSE reportedly plans to increase the size of its investor protection fund to INR 12 billion by 26 November and to maintain an additional INR 3 billion in reserves to meet any shortfall.

Exchanges in India typically raise money for the investor protection fund through quarterly fees charged to listed companies and through interest earned on security deposits held during a public offering of securities.

BSE India and MSE (Metropolitan Stock Exchange) have separately been asked by SEBI to enhance the effectiveness of the investor protection funds by improving their grievance redressal mechanism. The adequacy of their funds will be reviewed annually.

SEBI has also asked each exchange to operationalise a detailed standard operating procedure, covering procedures and timelines for obtaining information from investors, processing investor claims, reviewing claims, and declaring a trading member as a defaulter.

This is aimed at reducing the time it takes for payments to be made to investors impacted by broker defaults.