Markets regulator Sebi today said 'sensitive' commodities that are prone to frequent price fluctuation as well as government interventions will not be eligible for liquidity enhancement schemes.
Under the liquidity enhancement schemes (LES), brokers and other market intermediaries are given incentives for a specified period of time to bring in liquidity and generate investor interest in securities which have limited trading activity.
The schemes which incentivise brokers based on activation of new UCC (Unique Client Codes), number of trades or open interest will not be permissible under LES.
"Any commodity that is classified as sensitive commodity' by the exchange, shall not be eligible for LES," the regulator said in a circular.
The regulator has asked exchanges to put in place a mechanism to ensure that the LES does not create artificial volumes, does not take away liquidity form the market, is not manipulative in nature and will not lead to mis-selling of the product in the market.
A commodity derivative product is considered to be 'liquid' on the basis of average daily turnover. In the case of agriculture and agri-processed commodities, the threshold is Rs 200 crore while it is Rs 1,000 crore for non-agricultural commodities.
The classification is applicable on the basis of commodity exchanges.
Unless the LES is launched by the exchange where the particular commodity derivative product is already trading, no other bourse can have such a scheme for that specific product.
The provisions of this circular would come into force with immediate effect.
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