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NSE issues new framework for market making scheme

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Dion Global

11 Jan 2017

To encourage wider participation in the debt segment, NSE has put in a place a new framework for the market making scheme, which will be applicable for all securities traded in retail as well as institutional category.

Trading members of debt segment willing to do market making will need to register as market maker with exchange.

These registered market makers will have to intimate to exchange about the details of security as well as period of market making. The exchange would disseminate the details of market maker in public domain.

"In order to further encourage wider participation in Debt Segment, exchange has proposed to introduce a revised market making scheme in debt segment. The scheme is applicable for all securities traded in retail as well as institutional segment of debt segment order matching platform," NSE said in a circular.

A market maker is a broker-dealer firm that accepts the risk of holding a certain number of shares of a particular security to facilitate trading in that security.

Each market maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Once an order is received, the market maker immediately sells from its own inventory or seeks an offsetting order and the process takes place in mere seconds.

NSE said that a market maker has to fulfill certain obligations like "two-way quotes in selected securities to be within top 5 bid-asked, availability of quote at least 75% during the day, minimum quote size Rs 1 lakh for retail segment and 1 lot for institutional segment" to retain its qualification after registration with exchange.

The market maker should fulfill these conditions at least 50 per cent of the trading days in a month.

Market Maker has to provide a minimum notice period of one month to the exchange as to discontinue/deregistered from the market making scheme. They can be disqualified based on non-fulfillment of obligation, default in settlement or any other condition as specified by exchange from time to time.

Qualified market makers were incentivized based on the counter party with which the trade got executed.

"Total incentive payable by exchange to market maker for the month could not exceed Rs 25 lakh. In case, the incentive payable exceeds Rs 25 lakh for any month, the said incentive would be paid to the Market Makers on pro-rata basis," NSE said.

"In order to maintain market integrity, no incentives shall be provided on trades with same counterparties, which is same Unique client code (UCC) on both sides," it added.

The scheme would be effective and valid for a period commencing from January 11 to June 30.