BSE introduces Market Making Scheme for Stock Futures and Sensex Futures

The Stock Exchange, Mumbai (BSE) is introducing a strong market-making scheme with significant financial benefits to the market makers, which has the potential to provide liquidity to its derivative segment.

A market maker is a member who provides for buy and sell orders within a maximum spread on continuous basis for a minimum quantity. The spreads would be specified in terms of price. The maximum spread and the minimum quantity can be mutually decided between the Exchange and the Market Maker. The Exchange would prefer the one who commits for a lower spread.

The rewards for the market maker for making the market will be directly proportional to the volumes generated in the selected futures product. A market maker could earn upto Rs. 4,50,000 per month with the average daily volume of only Rs. 100 crores in stock futures and sensex futures. Additionally, the market maker would be exempted from the transaction charges of Rs. 2 per lac (except contribution of Rs. 0.20 towards the Trade Guarantee Fund and Rs. 0.05 towards Investor Protection Fund) for the value of the transactions done by him.

The Exchange will be appointing market makers for all the scrips (31 stocks) and Sensex in futures products on the basis of competitive bidding on bid-ask spreads. Any Trading cum clearing member (TCM)/ Trading member (TM) of the derivatives segment of the Exchange could participate in the bidding process. A single market maker will be restricted to make the market in maximum two futures products to ensure wider participation by the members.

"The Exchange believes that the scheme will provide liquidity to the Derivatives Segment as the market maker will be obliged to give two way quotes in the selected futures products all the time (more than 80% of the total monthly trading time) within the range of buy-sell spread already agreed upon," says Dr. Sanjiv Mehta, CEO- Derivatives Segment, The Stock Exchange, Mumbai (BSE).

He adds, "This will provide the investors an opportunity to enter and exit any particular transaction with considerable ease."

The market maker will also be obliged to give a minimum depth (a minimum number of contracts on both -- buy and sell side). This will bring in more market participants to trade in the futures products. The normal risk management measures would be applicable to the market makers.

To facilitate market making, the Exchange will provide innovative system features. The new features especially designed for the market maker have been introduced which would enable him to place multiple orders, with predefined spreads, by punching a single key. Also, the system will provide the facility to modify multiple orders at a time, through the special pending order window, by punching a single key.