BSE launches mkt making scheme for derivatives

The Bombay Stock Exchange (BSE) has launched a market making scheme to generate more investor interest in derivatives, based on its benchmark Sensex and the underlying 30 stocks. The exchange has earmarked a total of Rs 107 crore for the scheme that will be in force for six months.

According to a release issued by the exchange, the Liquidity Enhancement Incentive Programmes (LEIPS) will reward derivative members for building a ‘healthy’ order book with the goal of creating ‘lasting, self-sustaining liquidity in BSE’s derivatives segment.’

Market making liquidity enhancement scheme, in regulatory parlance, is essentially a way in which an exchange can reward entities that generate a certain amount of volume in a segment. The Securities and Exchange Board of India (Sebi), in June, allowed bourses to introduce such schemes for equity derivatives and any new instruments to be launched.

Meanwhile, BSE will reward all participating members based on both traded volumes and the open interest maintained. Interestingly, incentive payouts will be made to all participating members and not just the market-makers. Exchange fees for the derivatives segment in some instances have been slashed to nil up to a maximum of Rs 50, which works out to 1/100th of the options trading fees at other exchanges in the country, added the release.

“We have been working hard on the structure of the programme and have taken extensive feedback from market participants in designing the programmes,” said Madhu Kannan, MD & CEO, BSE, while announcing the launch of the scheme.

The exchange’s incentive programme has been structured in a two-tier system, where members will be provided assistance in testing derivatives system and clearing capabilities for the same. This will be from September 28 till October 25 and incentives to the tune of Rs 5 crore would be paid to all participating members during this period. The second module will run for six months and will be for members who generate volume in the derivatives segment.

The National Stock Exchange (NSE) has already introduced a market making scheme for enhancing volumes in the derivative contracts of S&P 500 and Dow Jones Industrial Average, which were launched late last month.