An “exchange protection fund” is not one universal policy. The name can refer to different investor-compensation schemes created under different laws, each with its own rules about who qualifies, which intermediaries and products are covered, and what event triggers payment. These schemes may help when a covered intermediary fails and eligible customer assets cannot be returned; they generally do not insure investments against falling prices or an issuer’s default.
What an exchange protection fund is designed to do
An investor-compensation fund is a legal backstop for defined losses under a particular jurisdiction’s scheme. A common trigger is the failure or default of a covered brokerage or other intermediary, followed by an inability to return eligible customer cash or securities. The precise trigger and coverage depend on the fund’s rules.
This protection is distinct from asset segregation. In Japan, securities firms must keep customer assets separate from their own. If that separation works, customers’ assets should ordinarily be returnable even if the firm fails. The Japan Investor Protection Fund (JIPF) is a backstop for qualifying assets that cannot be returned in the specified circumstances, not a substitute for segregation requirements. JIPF’s Q&A
What losses are generally outside the protection
A compensation fund is not the same as insurance against investment risk. Under JIPF’s rules, the fund does not compensate for a security’s market-price decline, an issuer’s failure to repay principal or interest, or a loss caused by a securities firm’s false or misleading explanation. Its compensation calculation is based on the eligible asset’s value under the fund’s rules, not the difference between the investor’s purchase price and that value. JIPF’s Q&A
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Other exclusions may apply to products, transactions, customers, or business activities. For example, JIPF lists foreign-exchange transactions, over-the-counter derivatives, derivatives traded on overseas securities exchanges, certain currency-related exchange transactions, and some Type II Financial Instruments Business products among exclusions or specially treated activities. Eligibility can depend on both the customer’s status and the business to which the assets relate. Check the relevant fund’s rules rather than assuming every account or product at a member firm qualifies. JIPF’s Q&A
How the rules differ: Japan and Hong Kong
These examples show why the scheme and jurisdiction must be named. They are not universal rules and should not be treated as interchangeable.
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| Scheme | Described trigger and scope | Limit or detail established by the cited page |
|---|---|---|
| Japan Investor Protection Fund (JIPF) | Insolvency of a member securities firm and inability to return qualifying customer cash or securities; eligible customers, assets, and transactions are subject to the scheme’s rules. | Up to ¥10 million per customer for eligible unreturned cash and securities. The cited Q&A does not state a page date. Compensation is paid in cash, including when the missing asset is a security; listed securities are valued at the closing price on the day JIPF publicly announces compensation, and amounts the customer owes the failed firm are deducted. JIPF’s Q&A |
| Hong Kong Investor Compensation Fund | Pecuniary losses caused by default of a licensed intermediary or authorized financial institution in relation to exchange-traded products in Hong Kong. The fund’s page says qualifying losses involving certain Shanghai or Shenzhen exchange securities routed through northbound Stock Connect are covered for defaults on or after 1 January 2020. | The cited introduction page does not set out a current compensation limit or all eligibility, calculation, and claim details. It identifies the Investor Compensation Company as the recognized administrator that receives, determines, and pays claims. Investor Compensation Fund introduction |
Japan: qualifying assets and customers
JIPF’s examples of covered transactions include shares, public and corporate bonds, investment trusts, certain margin-trading deposits, and specified clearing margins for eligible domestic exchange-traded derivatives. The coverage applies only to eligible customers and relevant regulated business. JIPF says professional investors, including financial institutions and government bodies, are not eligible as “general customers.” Its Q&A also lists exclusions and special conditions, so these examples do not establish coverage for every investor or transaction. JIPF’s Q&A
For an eligible claim, JIPF’s stated ceiling is ¥10 million per customer. Amounts above that ceiling are not automatically erased: the customer retains a claim against the failed firm, but any recovery through insolvency proceedings depends on the firm’s remaining assets. JIPF’s Q&A
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Hong Kong: specified exchange-traded products
The Hong Kong Investor Compensation Company describes the fund as covering investors of any nationality who suffer pecuniary losses because a licensed intermediary or authorized financial institution defaults in relation to exchange-traded products in Hong Kong. The same page includes certain northbound Stock Connect securities for defaults occurring on or after 1 January 2020. The page establishes this general scope but does not provide all current claim conditions or calculation details; consult the fund’s detailed rules for those particulars. Investor Compensation Fund introduction
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What to check before relying on a fund
Do not infer protection from the words “exchange protection fund” alone. Confirm the rules for the exact legal entity and account holding your assets, as well as the relevant product and transaction. A useful comparison checklist is:
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- Trigger: What event must occur—intermediary insolvency or default, inability to return assets, or another specified event?
- Eligible person: Are retail or general customers covered? Are professional investors, particular entities, or non-residents excluded?
- Intermediary: Must the broker or institution be a member, licensed, or otherwise recognized, and is the account held by the covered legal entity?
- Property and activity: Which cash, securities, exchange-traded products, margin collateral, markets, and transaction types qualify?
- Excluded losses: Are market declines, issuer defaults, misrepresentation, FX, OTC derivatives, or overseas activity outside the scheme?
- Limit and calculation: Is the cap per customer, account, intermediary, or event? What valuation date, deductions, and currency apply?
- Claims: Who determines that a qualifying failure occurred, when can a claim be filed, what is the deadline, and how are amounts above the cap handled?
Use the official fund’s current information to answer those questions. A limit or eligibility rule from one jurisdiction should not be applied to another.
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