CIRCULAR, CIR/MRD/DP/14/2014,
dated 23rd April, 2014
Revised guidelines for Liquidity Enhancement Scheme
in the Equity Cash and Equity Derivatives Segments
To
All
Stock Exchanges
1. SEBI vide circular
CIR/DNPD/5/2011 dated June 02, 2011 and circular CIR/MRD/DP/14/2010 dated
February 08, 2013 permitted stock exchanges to introduce liquidity enhancement
schemes in the equity derivatives and equity cash segments to enhance liquidity
in illiquid securities.
2. Based on the experience of stock
exchanges in offering liquidity enhancement schemes in the equity cash and
equity derivatives segments, and based on the discussions held in Secondary
Market Advisory Committee, it has been decided to revise the framework for
providing liquidity enhancement schemes as given below.
3. Introduction of liquidity
enhancement schemes - The stock exchange may introduce liquidity enhancement
schemes in equity cash and equity derivatives segments subject to the
following:
3.1. The scheme shall have the prior
approval of the Stock Exchange’s Board and its implementation and outcome shall
be monitored by the Board at quarterly intervals.
3.2. The scheme shall be objective,
transparent, non-discretionary and non-discriminatory.
3.3. The scheme shall specify the
incentives available to the market makers / liquidity providers and such
incentives may include discount in fees, adjustment in fees in other segments,
cash payment or issue of shares, including options and warrants.
3.4.
The scheme shall
not compromise market integrity or risk management.
3.5. The effectiveness of the scheme
shall be reviewed by the stock exchange every six months and the stock exchange
shall submit half-yearly reports to SEBI.
3.6. The scheme, including any
modification therein or its discontinuation, shall be disclosed to the market
atleast 15 days in advance.
3.7. Outcome of the scheme
(incentives granted and volume achieved – market maker wise and security wise)
shall be disseminated monthly.
3.8. The scheme shall comply with all
the relevant laws.
4. Securities eligible for
liquidity enhancement schemes - The stock exchange shall formulate it's own
benchmarks for selecting the securities for liquidity enhancement with the
broad objective of enhancing liquidity in illiquid securities.
4.1. The stock exchanges shall
introduce liquidity enhancement schemes on any security for a maximum period of
three years. Once the scheme is discontinued, the scheme can be re-introduced
on the same security provided it is less than the three year period since the
introduction of scheme on that security.
4.2. Further, a stock exchange may
introduce liquidity enhancement schemes in securities where liquidity
enhancement scheme has been introduced in another stock exchange. Such schemes
cannot be continued beyond the period of liquidity enhancement schemes of the
initiating stock exchange.
4.3. The list of securities eligible
for liquidity enhancement shall be disseminated to the market.
5. The incentives under liquidity
enhancement schemes shall be transparent and measurable, and may take either of
the following two forms:
5.1. Discount in fees, adjustment in
fees in other segments or cash payment - The incentives during a financial year
shall not exceed 25% of the net profits or 25% of the free reserves of the
stock exchange, whichever is higher, as per the audited financial statements of
the preceding financial year.
5.2. Shares, including options and
warrants, of the stock exchange - The shares that may accrue on exercise of
warrants or options, given as incentives under all liquidity enhancement
scheme, during a financial year, shall not exceed 25% of the issued and
outstanding shares of the stock exchange as on the last day of the preceding
financial year. Further, the stock exchange shall ensure that this is in
compliance with the Securities Contracts (Regulation) (Stock Exchanges and
Clearing Corporations) Regulations, 2012 at all times.
6. Market integrity - The stock
exchange shall ensure the following:
6.1. The stock exchange shall have
systems and defined procedures in place to monitor collusion between stock
brokers indulging in trades solely for seeking incentives and prevent payment of
incentives in such cases.
6.2. Incentives shall not be provided
for the trades where the counterparty is self, i.e., same Unique Client Code
(UCC) is on both sides of the transaction.
6.3. Any violations of clauses in
this para shall be viewed most seriously.
7. Market maker / liquidity
enhancer - The exchange shall prescribe and monitor the obligations of
liquidity enhancers (liquidity provider, market-maker, maker-taker or by
whatever name called)
7.1. All market maker / liquidity
enhancer orders / trades should be identifiable by the stock exchange.
7.2. A conflict of interest framework
shall be put in place by the stock exchange for the liquidity enhancement
scheme. Such a framework shall provide for obligation on the part of the market
maker / liquidity enhancer to disclose any conflict of interest while
participating in the scheme. The same shall be disclosed by the stock exchange
on their website.
8. This circular shall not be
applicable to securities listed on SME Platform or SME Exchange.
9. This circular shall supersede
earlier SEBI circulars viz. CIR/DNPD/5/2011 dated June 02, 2011 and
CIR/MRD/DP/14/2010 dated February 08, 2013 on liquidity enhancement in the
equity derivatives and equity cash segments.
10. Stock Exchanges are directed to:
10.1. take necessary steps to put in
place systems for implementation of the circular, including necessary
amendments to the relevant byelaws, rules and regulations;
10.2. bring the provisions of this
circular to the notice of the stock brokers and also disseminate the same on
its website;
10.3. communicate to SEBI the status
of implementation of the provisions of this circular.
11. This circular is being issued in
exercise of powers conferred under Section 11 (1) of the Securities and Exchange
Board of India Act, 1992 to protect the interests of investors in securities
and to promote the development of, and to regulate the securities market.
.
.
.
.
0 comments:
Post a Comment