SEBI introduces liquidity enhancement scheme for illiquid stock derivatives

The Securities Exchange Board of India (SEBI) today announced new liquidity enhancement measures for illiquid equity derivatives.

Under the scheme, stock exchanges will be permitted to introduce one or more liquidity enhancement schemes (LES) to incentivise liquidity enhancement of illiquid securities in their equity derivatives segment.

LES may be introduced in the form of new securities permitted on the stock exchange or as a new segment in securities where the average trading volume for the previous 60 trading days on the stock exchange is less than 0.1 per cent of market capitalisation of the underlying security.

The LES can be discontinued at any time with an advance notice of 15 days. It should, however, be discontinued as soon as the average trading volume on the stock exchange, during the last 60 trading days, reaches 1 per cent of market capitalisation of the underlying, or six months from introduction of the scheme, whichever is earlier.

If a stock exchange introduces LES on eligible securities, other stock exchanges may introduce LES in the same / competing securities even if those are not eligible. Such LES of the other stock exchanges cannot be continued beyond the period of LES of the former stock exchange.

The incentives under LES should be transparent and measurable, either in the form of a discount in fees, adjustment in fees in other segments, cash payment or shares, including options and warrants, of the stock exchange.