Liquidity Enhancement Schemes for Illiquid Securities in Equity Cash market
Summary
This circular permits stock exchanges to introduce Liquidity Enhancement Schemes (LES) for illiquid securities in the Equity Cash market. It establishes eligibility criteria based on mean impact cost and mandates specific governance, transparency, and incentive structures for these schemes. The document outlines strict prohibitions against self-trading for incentives and requires regular reporting to SEBI.
Text
It has therefore been decided to permit stock exchanges to introduce LES to enhance liquidity of illiquid securities in their Equity Cash market.
Securities having a mean impact cost greater than or equal to 2% for an order size of Rs.1 lakh, where mean impact cost of the security on the stock exchange is calculated over the past 60 trading days.
Securities introduced for trading in the “permitted to trade” category.
LES may be continued till such time as the security achieves mean impact cost of less than 2% for an order size of Rs.1 lakh on the stock exchange during the last 60 trading days.
Discontinuation of LES for any security shall be done after advance notice of 15 days.
In case any stock exchange introduces LES on securities eligible under para 3(a) above, other stock exchanges may also introduce LES in the same securities even if those are not eligible on their stock exchange under 3(a). Such LES of other stock exchanges shall not be continued beyond the period of LES at the initiating stock exchange.
The stock exchange shall ensure that the LES... has the prior approval of its Board and its implementation and outcome is monitored by the Board at quarterly intervals;
is objective, transparent, non-discretionary and non-discriminatory;
is disclosed to the market atleast 15 days in advance and its outcome (incentives granted and volume achieved – liquidity enhancer wise and security wise) is disseminated monthly within a week of the close of the month.
The incentives under LES shall be transparent and measurable. These may take either of the two forms: (a) Discount in fees, adjustment in fees in other segments or cash payment; (b) Shares, including options and warrants, of the stock exchange.
If a stock exchange chooses the form specified in Para ‘9a’ above, the incentives under all LES... shall not exceed 25% of the net profits or 25% of the free reserves... If... Para ‘9b’... shares... shall not exceed 25% of the issued and outstanding shares...
The Exchange must have systems and defined procedures in place to monitor collusion between trading members indulging in trades solely for seeking incentives and prevent payment of incentives in such cases.
You have read the preview. Create a free account to read the full document and see every order that applied it.
Free accounts include 10 searches/day with full text access.
Source: SecMarx — Liquidity Enhancement Schemes for Illiquid Securities in Equity Cash market. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.