Sebi allows liquidity schemes in equity derivatives

Market regulator the Securities and Exchange Board of India (Sebi) today allowed stock exchanges to introduce liquidity enhancement schemes in the equity derivatives segments.

The schemes could be introduced in securities where the average trading volume during 60 trading days is less than 0.1% of the total market capitalisation of the concerned company.

"In consultation with BSE, MCX-SX, NSE and USE, it has been decided to permit stock exchanges to introduce one or more liquidity enhancement schemes to enhance liquidity of illiquid securities in their equity derivatives segments," the Sebi said in a circular.

It asked the bourses to monitor such schemes as per rules and ensure that they operate in a transparent manner and do not compromise market integrity.

Besides new stock exchanges, the schemes can also be introduced for "securities where the average trading volume for the last 60 trading days on the Stock Exchange is less than 0.1% of market capitalisation of the underlying".

The regulator further added that the schemes 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 capitalisation of the underlying, or six months from introduction of the scheme, whichever is earlier," it said.

The stock exchanges who undertakes such schemes have been told to submit half-yearly reports on their working for review of Sebi.

Experts said the new initiatives will help the Futures and Options section.

"It is basically intended to bring to give a more free hand to F&O segment and will lead to increase in liquidity of such stocks," SMC Capitals Equity Head Jagannadham Thunuguntla said.