SEBI Revised guidelines for Liquidity Enhancement Scheme in the Equity Cash and Equity Derivatives Segments

Last updated: 01 September 2021

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The Securities and Exchange Board of India (SEBI) has updated its guidelines for Liquidity Enhancement Schemes (LES) in the equity cash and equity derivatives markets. These revisions aim to enhance liquidity in less-traded securities. Key changes include requiring prior Governing Board approval for schemes, which will be valid for one year and can be renewed annually. The Governing Board will also monitor the implementation and outcomes quarterly. Schemes can be re-introduced on the same security after discontinuation.

Securities And Exchange Board Of India

CIRCULAR

SEBI/HO/MRD/DSA/CIR/P/2021/623

September 1, 2021

All Recognised Stock Exchanges

Dear Sir / Madam,

Subject: Revised guidelines for Liquidity Enhancement Scheme in the Equity Cash and Equity Derivatives Segments

1. SEBI vide circular CIR/MRD/DP/14/2014 dated April 23, 2014 permitted stock exchanges to introduce liquidity enhancement schemes in the equity cash and equity derivatives segments to enhance liquidity in illiquid securities.

2. Based on the experience of stock exchanges, it has been decided to modify clause 3.1 and 4.1 of said Circular as under:

“3.1 The 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. Further, its implementation and outcome shall be monitored by the Governing Board at quarterly intervals.

4.1. The Stock Exchange shall introduce liquidity enhancement schemes on any security. Once the scheme is discontinued, the scheme can be re-introduced on the same security”.

3. The above will also be applicable to existing schemes. Other conditions prescribed in aforesaid SEBI Circular dated April 23, 2014 shall remain unchanged.

4. Stock exchanges are directed to:

4.1. take necessary steps and put in place necessary systems for implementation of the above.

4.2. make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision.

4.3. bring the provisions of this circular to the notice of the stock brokers/ trading members of the stock exchanges and also disseminate the same on its websites.

5. This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 read with Section 10 of Securities Contracts (Regulation) Act, 1956, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. This circular is available on SEBI website at www.sebi.gov.in.

Amit Kapoor
General Manager
Market Regulation Department
Email: amitk@sebi.gov.in

FAQ :

SEBI has modified clauses 3.1 and 4.1 of its 2014 circular regarding Liquidity Enhancement Schemes. The changes focus on scheme approval, validity, monitoring, and re-introduction on securities.

A scheme shall have prior approval of the Governing Board of the Stock Exchange, which will be valid for one year. The Governing Board may give yearly approval for its continuation.

The Governing Board of the Stock Exchange will monitor the implementation and outcome of the schemes at quarterly intervals.

Yes, once a scheme is discontinued, it can be re-introduced on the same security.

Yes, the revised guidelines will also be applicable to existing schemes.