Investors’ Protection Fund: What you need to know

Investor Protection Fund is a fund that must be established and maintained by a securities exchange or capital trade point in accordance with part XIV of Investment and Securities Act 2007.

The fund is expected to be administered by a board of trustees subject to the regulatory supervision of the Securities and Exchange Commission.

The assets of an investor protection fund is vested in the board of trustees and kept separate and applied for the purposes as set out in the Act.

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According to the Investment and Securities Act, the objectives of an investor protection fund shall be to compensate investors who suffer pecuniary loss arising from;

1. the insolvency, bankruptcy or negligence of a dealing member firm of a securities exchange or capital trade point; and
2. defalcation (theft, misuse or misappropriation of money or funds) by a dealing member firm or any of its directors, officers, employees or representatives in relation to securities, money or any property entrusted to, or any property entrusted to, or received or deemed received by the dealing member firm in the course of its business as a capital market operator.

The Nigerian Exchange Limited (NGX) maintains Investo​rs’ Protection Fund (IPF) in line with part XIV of the Investment and Securities Act 2007, (CAP 124, LFN, 2004) (“ISA”) that requires The Nigerian Exchange to establish and maintain an investor protection fund. ​

The IPF was reconstituted in 2012, and as at 24 May 2019, the the monetary value of the IPF is One Billion, One Hundred and Eighty-Five Million, Four Hundred and Fifty-Three Thousand, Eight Hundred and Fifty One Naira, and Thirty-Four Kobo (N1,185,453,851.34).

Payments into the Fund

1. Contributions from Dealing Members firms which shall comprise of:
   1. A mandatory Initial Payment of the sum of N1,000,000.00 (One Million Naira) prior to
      the Dealing Members firm’s acquisition of a Dealing Membership License from The
      Exchange, provided that the value of this mandatory initial payment may be changed
      from time to time as determined by the Board, subject to the approval of The
      Exchange.
   2. An annual Payment of an amount to be determined by the Board from time to time, subject to the approval of The Exchange.
   3. A mandatory Annual Premium calculated in accordance with the following formulae; (Total customers securities and funds managed by the Dealing Member firm/Dealing Member firm’s assets) x 100%.
   4. Periodic Payment of an amount as may be determined by the Board from time to
      time in accordance with Section 208(b) of the ISA to be applied towards making up
      any deficiency in the event that the Fund falls below the minimum amount approved
      for the Fund.
2. An amount from erring Dealing Member firms equal to a percentage of penalties/fines paid by such Dealing Member firms to The Exchange for contravening capital market Rules, Regulations and Market Practices, such percentage shall to be determined by The Exchange from time to time.
3. The interest and profits accruing from the investment of the Fund
4. All monies paid to the Fund in accordance with the provisions of the ISA.
5. All monies recovered by or on behalf of the Board in the exercise of any right of action conferred by the ISA.
6. All monies paid by an insurer pursuant to any contract of insurance or indemnity entered into by a Dealing Member firm or the Board of Trustee.
7. Any monies whether in form of grants, donations or subventions received from The Exchange or other institutions and persons.
8. Monies received as income from, or the proceeds of sale of any investments.
9. Monies borrowed by the Board from The Exchange for the purposes of the Fund.
10. Payment on transactions by Dealing Member firms of 1bp or N100.00 per N1 million on both sides, subject to the approval of The Exchange.
11. All other monies received by the Fund pursuant to the provisions of the ISA for the furtherance of its aims and objectives.

Payments out of the fund

1. There shall from time to time be paid from the Fund;
   1. Monies required by the Board for the payment of compensation to investors, in accordance with these Rules.
   2. Monies required for the arrangement, service or repayment of loans obtained by the Board from The Exchange for the purposes of the Fund.
   3. Premiums on policies of insurance taken out by the Board for the purposes of the Fund.
   4. All expenses incurred by the Board in its administration and management including expenses arising from professional services in establishing the Fund, professional fees and expenses of the auditor to the Fund, expenses of the staff of the Fund, professional fees and expenses of advisers appointed by the Board from time to time to render services to the Board or Fund.
   5. Such other monies as are permissible to be paid may be payable out of the Investors’ Protection Fund in accordance with the provisions of the ISA.
2. Payments of compensation out of the Fund shall be in monetary form only.

Process claimant must go through to received compensation under the IPF

The processes a claimant must go through to receive compensation are:

1. Claimant(s) is required to forward a written complaint to The Exchange. Upon receipt, the claim is verified by The Exchange and if eligible under sections 198 and 212 of the Investment and Securities Act 2007 (ISA) the claim will be referred to the IPF.
2. The BOT of the IPF reviews and approves the verified claims and authorizes the referral of the claimant for identity verification.
3. The Claimant is required to undergo the identity verification exercise by identity verification consultant engaged by the BOT.
4. Upon the successful completion of the identity verification exercise, a report is presented by the identity verification consultant for the approval of the BOT.
5. Upon the approval of the BOT, the claimant is required to execute an indemnity
   and subrogation agreement following which payment of compensation is made to the claimant.

As at 31 May 2019, the number of claimants whose identity were successfully verified is Four Hundred and Fourteen (414); the total number of claims approved for compensation payment by the BOT is Three Hundred and Fifty-Three (353); total number of claimants compensated is Two Hundred and Seventy (270) valued at Seventy Three Million Eight Hundred and Two Thousand Two Hundred and thirty-one Naira Sixty Seven Kobo (N73,802,231.67) and the total number of approved claimants yet to be compensated is Eighty-Three (83).

There is a limit however to the compensation amount a claimant can receive irrespective of the loss they suffered.

The maximum compensation payable to a claimant that suffered any loss is the sum of N400,000.00 (Four Hundred Thousand Naira) or such sum as may be determined by the BOT of the IPF from time to time.

Compensation is payable on cash basis only.

Nnamdi Maduakor

Nnamdi Maduakor is a Writer, Investor and Entrepreneur