Market-Maker Could Turn A Volume Pivot

For those lamenting the demise of volumes and liquidity on the bourses following the death of badla, revivification could be at hand.

It could come with the grace of the unsung and unseen, but potentially pivotal entity called the market maker.

Once the cash and futures market are completely segregated from July 2, the market-makers are expected to crawl out of the woodwork.

Their primary objective will be to provide liquidity, depth and continuity in trading.

As market makers, the brokers will once again provide two-way quotes in the shares they have undertaken for market making, at regular intervals of thirty minutes with a minimum depth of Rs 5,000 or one market lot, whichever is higher.

While the stocks under rolling mode, which are mostly active, will not be extended support by the market makers, the not-so-happening stocks will finally see the light of the day.

Now the illiquid shares will have the saviour in market maker. The need to provide a different trading mechanism for infrequently traded shares to infuse liquidity will witness hectic trading due to market making.

"The volumes which are expected to dry up with the restriction of just one trading day against the current 5 days cycle, will be lifted with the active participation of market makers," a broker said.

According to players, among the shares which are infrequently traded, there are fairly large number of them in which liquidity could be imparted by market making because of the inherent strengths of these shares.

The market making activity, currently being voluntary in nature, has not evoked interest mainly because trading in active stock brought better returns.

However, the rolling and uniform settlement being introduced from July 2 and an expected depletion in volumes, will sort of push the approved brokers to actively indulge in market making to generate business, brokers said.

The shares which will attract market makers will be the shares where the average number of trades is less than 50, or shares where the value of trades on a daily basis is less than Rs 10 lakh, or shares of the company not in operation and the net worth erosion is beyond 50 per cent.

Since the market makers can operate in an exclusively quote-driven system, that is if a share is eligible for market making and market makers are available, then it is to be traded only under a quote-driven system and all orders have to flow only through the market makers, it is sufficient incentive to actively generate business, brokers said.