IFSCA notifies guidelines for liquidity enhancement scheme.

The International Financial Services Centres Authority on 31st March 2022 has decided to review the Liquidity Enhancement Scheme (LES) being operated in IFSC. The Stock Exchange may introduce liquidity enhancement schemes in any security/ listed products.

The scheme shall have the prior approval of the Governing Board of the Stock Exchange and its implementation  and  outcome  shall  be  monitored  by  the  Board  at  quarterly intervals and it shall specify  the  incentives  available  to  the  market  makers  /liquidity providers  and  such  incentives  may  include  discount  in  fees,  adjustment  in fees  in  other segments, cash payment or issue of shares, including options and warrants.

 The scheme, including any modification therein or its discontinuation, shall be disclosed to the market atleast 15 days in advance.

The Stock  Exchange shall create  a  reserve  specifically  to  meet incentives/expenses  of  the Liquidity  Enhancement  Scheme, based  on  the  normative  study  of  the  LES  in  the  domestic market and such reserves shall not be included in the calculation of net worth.

Further the Stock Exchanges shall formulate their own benchmarks for selecting the securities for liquidity enhancement with the broad objective of enhancing liquidity in illiquid securities.

a) The Stock Exchanges shall introduce liquidity enhancement schemes on any security for a maximum period of five years. Once the scheme is discontinued, the scheme can be re-introduced  on  the  same  security  provided  it  is  less  than  the five year  period  since  the introduction of scheme on that security.

b)Further,  a Stock  Exchange may  introduce  liquidity  enhancement  schemes  in  securities where  liquidity  enhancement  scheme  has  been  introduced  in  another Stock  Exchange. Such schemes cannot be continued beyond the period of liquidity enhancement schemes of the initiating Stock Exchange.

c)The  list  of  securities  eligible  for  liquidity  enhancement  shall  be  disseminated  to  the market.