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The facade of the Bombay Stock Exchange

Kripa Raman

Mumbai, Aug. 22 The Bombay Stock Exchange had spent at least Rs 65 crore last fiscal on two market makers whose brief was to create volumes in derivatives trading on the Exchange.

A senior BSE official confirmed that there was such a market maker “scheme” that had been approved and budgeted for by the BSE Board, in the hope that it would whip up some activity in the near dormant Futures & Options segment on the exchange.

The identity of the two market makers who were appointed could not be ascertained. But the two were entrusted to maintain certain positions in F&O to create liquidity, the intended targets of which were never reached, said sources.

A market maker is an entity that quotes both buy and sell prices in a financial instrument. It is not an uncommon practice overseas for exchanges to appoint official market makers for various purposes, including for creating liquidity in a specific instrument or security.

Futures & Options trading on BSE is negligible when compared with that on its larger competitor, National Stock Exchange. BSE’s F&O volumes on Friday amounted to Rs 12 crore, (roughly the daily average volumes that NSE reported for year 2000-2001) compared with NSE’s Rs 44,332 crore.

With the larger bulk of trading volumes coming from F&O on NSE, it was urgent that BSE’s own trades show some improvement, said sources. The market maker scheme did not create the desired results, but instead served to aggravate the existing internal strife in the exchange, said sources.

The exchange official said the Audit Committee of BSE had pointed out “certain weaknesses in the scheme” after which the Board decided to discontinue it. According to him, the scheme had never been a subject of dispute.

There has been much talk of internal differences among the Board of BSE, and of the Board’s differences or interference with the management, all of which the exchange has officially refuted. But there has been some telling churn at the Board. Two months ago, the non-executive Chairman, Mr Shekhar Datta, and the Director, Mr Jamshyd Godrej, resigned from it. More recently, the BSE MD & CEO, Mr Rajnikant Patel, resigned from his post.

More Stories on : Derivatives Markets | Stock Exchanges

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