MCSGFC
Also written Member Core Settlement Guarantee Fund Committee
The Member Core Settlement Guarantee Fund Committee that sanctions and ratifies a claim against a defaulter trading member before it is sent to the Investor Protection Fund Trust for disbursement.
In plain language
When a trading member is declared a defaulter, its clients do not simply get paid out on request. Someone inside the exchange structure has to check each claim before the Investor Protection Fund actually pays it out — otherwise the fund would be exposed to inflated or invalid claims with no gatekeeper.
That gatekeeper is the Member Core Settlement Guarantee Fund Committee (MCSGFC). The workbook's own words: "The Stock Exchanges shall ensure that once a TM has been declared defaulter, the claim(s) shall be placed before the Member Core Settlement Guarantee Fund Committee (MCSGFC) for sanction and ratification. MCSGFC's legitimate claims shall be sent to the IPF Trust for immediate disbursement of the amount."
How it works
MCSGFC sits inside the wider Investor Protection Fund (IPF) claims process that Chapter 10 sets out:
- A trading member (TM) is declared a defaulter.
- A public notice is issued announcing the default and inviting claims within a specified period, and clients of the defaulter are intimated by email and SMS.
- Claims received during that specified period are placed before MCSGFC — the workbook is explicit that this happens once a TM has been declared defaulter, not before.
- MCSGFC sanctions and ratifies the claims — this is the check that separates legitimate claims from the rest.
- MCSGFC's legitimate claims are sent to the IPF Trust, which disburses the compensation amount — described as "immediate disbursement" once a claim clears MCSGFC.
- Compensation is capped: the IPF Trust's payout to any one investor shall not be more than the maximum amount fixed for a single claim, a limit the stock exchanges fix in consultation with the IPF Trust and SEBI.
Around this process, the workbook also notes: claims arising from speculative transactions are not eligible for IPF compensation; a claim received more than three years after the expiry of the specified claims period may instead be treated as a civil dispute; and clients who dealt through authorised persons of the defaulting TM (registered with the exchange) are also eligible to claim.
A worked example
A trading member, Vedanta Broking Services, is declared a defaulter by the exchange on 1 June. The exchange issues a public notice and emails/SMSes its clients, inviting claims within the specified period, which closes on 31 August.
| Claimant | Nature of claim | Outcome at MCSGFC |
|---|---|---|
| Mr Nair, cash-segment client, Rs 3,20,000 unpaid on a delivery trade | Genuine, documented | Sanctioned and ratified — forwarded to the IPF Trust for immediate disbursement |
| Ms Iyer, claim arising from a speculative currency futures position | Speculative in nature | Not eligible for IPF compensation at all — excluded before it can even be a legitimate claim |
| Mr Rao, claim filed through the defaulter's authorised person, Rs 1,10,000 | Genuine, dealt through an authorised person registered with the exchange | Eligible, sanctioned by MCSGFC like a direct client claim |
| Mr Sen, claim filed on 15 October, four years later | Outside the claims window and outside the three-year outer limit | Not processed by MCSGFC — treated instead as a civil dispute |
Mr Nair's Rs 3,20,000 claim, once ratified by MCSGFC, is sent to the IPF Trust, which disburses it — subject to the maximum per-investor compensation limit the exchange has fixed in consultation with the IPF Trust and SEBI. If his claim exceeded that cap, only the capped amount would be paid from the IPF; anything beyond it is not the IPF's obligation.
Why NISM asks about it
Chapter 10 (Codes of Conduct and Investor Protection Measures), section 10.4 (Investor Protection Fund), sets out the whole default-and-claims sequence and names MCSGFC as the sanctioning body between a claim being received and the IPF Trust disbursing it. Expect a sequencing question — public notice, claims window, MCSGFC sanction and ratification, IPF Trust disbursement — and a question on what MCSGFC stands for and what it does with a claim once it lands there.
Common exam traps
- MCSGFC sanctions and ratifies claims; the IPF Trust disburses them. These are two different bodies with two different jobs in the same sequence — do not merge them.
- MCSGFC only sees claims after a TM has been declared defaulter — it is not a general grievance body for every investor complaint.
- Speculative-transaction claims are excluded outright, before MCSGFC's sanction stage is even relevant.
- Three years from expiry of the specified claims period is the outer limit for a claim to be treated within this mechanism at all — after that, it becomes a civil dispute rather than an MCSGFC/IPF matter.
- Compensation is capped per investor, at a limit the exchange fixes with the IPF Trust and SEBI — MCSGFC ratifying a claim does not guarantee the client recovers the full claimed amount.
- Clients of the defaulter's authorised persons are eligible too — the mechanism is not limited to clients who dealt with the TM directly.
Check yourself
1.Which of the following claims against a defaulting trading member would NOT be eligible for compensation from the IPF?
- a)A claim by a client who dealt through a registered authorised person of the defaulting member
- b)A claim arising out of speculative transactions
- c)A claim lodged within the specified period
- d)A claim within the per-investor compensation limit
Show the answer
Answer: (b) A claim arising out of speculative transactions
The claims of the investors or clients arising out of speculative transactions shall not be eligible for compensation from the IPF.
This flows from the fund's founding purpose: it should take care of legitimate investment claims which are not of speculative nature of the clients of defaulting member(s).
Option A is expressly included: where the clients have dealt through the authorized persons of the defaulting TM, registered with the stock exchange, such clients will also be eligible for claims against the defaulting TM for compensation from the IPF.
Note the qualifier "registered with the stock exchange" — consistent with Chapter 6's rule that a trading member must obtain specific prior approval for each such person, and it is segment specific.
Option C states the basic eligibility condition: the claims received against the defaulter TMs during the specified period shall be eligible for compensation from the IPF.
And there is a second time-based exclusion: any claim received after three years from the date of expiry of the specified period may be dealt with as a civil dispute.
Option D describes the cap, not an exclusion: the IPF Trust shall disburse the amount of compensation from the IPF to the investor and such a compensation shall not be more than the maximum amount fixed for a single claim of an investor — a figure the exchanges fix... in consultation with the IPF Trust and SEBI.
The route a claim takes: once a TM has been declared defaulter, the claim(s) shall be placed before the Member Core Settlement Guarantee Fund Committee (MCSGFC) for sanction and ratification. MCSGFC's legitimate claims shall be sent to the IPF Trust for immediate disbursement of the amount.