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

Which of the following statements about the Investor Protection Fund (IPF) maintained by a stock exchange is correct?

The Investor Protection Fund is used to compensate investors when a trading member is declared a defaulter or expelled, subject to the compensation limits set by the exchange. It does not cover ordinary losses from price movements, and it is not a staff or operating fund.

  1. AIt is used to compensate investors when a trading member is declared defaulter, up to the limits specified by the exchangeCorrect
  2. BIt is used only to pay the salaries of exchange staff
  3. CIt is funded entirely by the investor's brokerage
  4. DIt compensates investors for any loss from market price falls

Explanation

The IPF is meant to compensate investors whose claims arise from a trading member being declared defaulter or expelled, subject to exchange-specified ceilings. It does not cover market losses, is not used for staff costs, and is not funded wholly by brokerage.

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