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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Investor Grievances and Arbitration

Mr. Gupta's broker defaulted and was declared a defaulter by the exchange. Mr. Gupta has a valid claim for funds and securities lying with that broker. Which fund is primarily used by the exchange to compensate such eligible investors up to a specified limit?

The Investor Protection Fund of the exchange is used. It compensates eligible clients of a defaulter or expelled broker up to a prescribed limit per investor. Settlement guarantee funds, by contrast, secure the clearing corporation's settlement obligations and are not meant for direct client compensation.

  1. AInvestor Protection FundCorrect
  2. BSettlement Guarantee Fund used for all client claims regardless of broker status
  3. CTrade Guarantee Fund of the depository
  4. DCore Settlement Guarantee Fund meant for broker's profits

Explanation

The Investor Protection Fund (IPF) maintained by each exchange compensates eligible investors of a defaulter or expelled broker, subject to the prescribed ceiling per investor. The settlement guarantee fund backs settlement of trades between members and the clearing corporation, not direct client compensation.

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