Liquidity Enhancement Schemes for Illiquid Securities in Equity Derivatives Segment
Summary
SEBI permits recognized stock exchanges to introduce liquidity enhancement schemes for illiquid equity derivatives securities. Stock exchanges must obtain Board approval, ensure transparency, and monitor obligations of liquidity providers while disclosing outcomes monthly. Incentives are capped at 25% of net profits or free reserves if cash-based, or 25% of issued shares if equity-based.
Text
Stock Exchanges to introduce one or more liquidity enhancement schemes (LES) to enhance liquidity of illiquid securities in their equity derivatives segments.
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.
prescribes and monitors the obligations of liquidity enhancers (liquidity provider, market maker, maker-taker or by whatever name called).
disburses the incentives linked to performance.
is objective, transparent, non-discretionary and non-discriminatory.
does not compromise market integrity or risk management.
complies with all the relevant laws.
is disclosed to market at least 15 days in advance and its outcome... is disseminated monthly within a week of the close of the month.
The LES can be introduced in any of the following securities: New securities permitted on the Stock Exchange after the date of this circular, Securities in case of a new Stock Exchange / new Segment, and Securities where the average trading volume for the last 60 trading days on the Stock Exchange is less than 0.1% of market capitalization of the underlying.
The LES can be discontinued at any time with an advance notice of 15 days. It shall, however, be discontinued as soon as the average trading volume on the Stock Exchange, during the last 60 trading days, reaches 1% of market capitalization of the underlying, or six months from introduction of the scheme, whichever is earlier.
If a Stock Exchange introduces LES on securities eligible under Para 3 above, other Stock Exchanges may introduce LES in the same / competing securities even if those are not eligible under Para 3 above. Such LES of the other Stock Exchanges cannot be continued beyond the period of LES of the former stock Exchange.
The incentives under LES shall be transparent and measurable. These may take either of the two forms: Discount in fees, adjustment in fees in other segments, cash payment; Shares, including options and warrants, of the Stock Exchange.
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Source: SecMarx — Liquidity Enhancement Schemes for Illiquid Securities in Equity Derivatives Segment. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.