Sebi comes out with new framework for liquidity enhancement schemes

By: |
September 01, 2021 5:45 PM

Under the new rule, Sebi said that stock exchange can introduce liquidity enhancement schemes on any security. Once the scheme is discontinued, the scheme can be re-introduced on the same security.

Further, its implementation and outcome will be monitored by the governing board at quarterly intervals.

Markets regulator Sebi on Wednesday eased framework pertaining to time period for introducing liquidity enhancement schemes on securities by stock exchanges.

The regulator, in 2014, permitted stock exchanges to introduce liquidity enhancement schemes in equity cash and equity derivatives segments to enhance liquidity in illiquid securities.

Based on the experience of stock exchanges, it has been decided to modify the framework, the Securities and Exchange Board of India (Sebi) said in a circular.

Under the new rule, Sebi said that stock exchange can introduce liquidity enhancement schemes on any security. Once the scheme is discontinued, the scheme can be re-introduced on the same security.

Earlier, stock exchanges were allowed to introduce liquidity enhancement schemes on any security for a maximum period of three years.

Once the scheme was discontinued, the scheme could be re-introduced on the same security provided it was less than the three year period since the introduction of scheme on that security.

In addition, Sebi said scheme “shall have prior approval of the governing board of the stock exchange which will be valid for one year.”

The governing board of the stock exchange may give yearly approval till the time the scheme is in operation, it added.

Further, its implementation and outcome will be monitored by the governing board at quarterly intervals.

Earlier, a prior approval of the stock exchange’s board was required for introduction of liquidity enhancement schemes and its implementation and outcome was monitored by the board at quarterly interval.

Under the liquidity enhancement 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.

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