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Market regulator SEBI has allowed the stock exchanges to introduce incentive schemes for brokers and intermediaries to enhance liquidity in illiquid securities in the equity cash segment.
The decision has been taken pursuant to the introduction of incentive schemes in the derivatives segment to enhance liquidity in illiquid derivative products, and demands for similar schemes for the equity cash market, the Securities and Exchange Board of India (SEBI) said in a circular.
Under the scheme, 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. There are more than 2,000 illiquid stocks on the leading exchanges.
SEBI said it has been decided to “permit stock exchanges to introduce Liquidity Enhancement Schemes (LES) to enhance liquidity of illiquid securities in their equity cash market”.
The securities eligible for the schemes are required to have “a mean impact cost greater than or equal to 2 per cent for an order size of Rs 1 lakh, calculated over the past 60 trading days“.
Besides, the schemes would apply to securities which fall under the ‘permitted to trade’ category.
SEBI said LES “may be continued till such time as the security achieves mean impact cost of less than 2 per cent for an order size of Rs 1 lakh on the stock exchange during the last 60 trading days”.
The regulator said the schemes can be discontinued at any time with an advance notice of 15 days.
SEBI added that stock exchanges may also re-introduce LES on the securities which meet the eligibility criteria.
Moreover, in case a bourse introduces the scheme on securities, “other stock exchanges may also introduce the scheme in the same securities “even if those are not eligible” on their platform. Such LES of other stock exchanges shall not be continued beyond the period of LES at the initiating stock exchange,” SEBI said.
The guidelines also say a stock exchange would have to seek the prior approval of its board regarding LES and any modifications or discontinuation of the scheme. The board has to monitor the schemes at quarterly intervals.
The stock exchanges have been asked to monitor such schemes in line with the norms to ensure that they are operated in a transparent manner and do not compromise market integrity.
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