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SEBI | Inventory Management for Market Makers of SME Exchange / Platform

Securities and Exchange Board of India

CIRCULAR

C I R / M R D / D S A / 3 1 / 2 0 1 2

November 27, 2012

To

The Managing Director/Executive Director of all Stock Exchanges, Clearing Houses/Corporations

Dear Sir / Madam,

Sub:  Inventory Management for Market Makers of SME Exchange / Platform

1.          SEBI vide circular dated April 26, 2010 has issued guidelines for market makers on stock             exchange/trading      platform     by    a     recognized      stock     exchange     having nationwide trading terminals for Small and Medium Enterprises (SMEs).

2.          Further,  SEBI  vide  circular  dated  May  18,  2010  prescribed  the  framework  for setting up of  a stock exchange/trading platform by a recognized stock exchange having nationwide trading terminals for Small and Medium Enterprises (SMEs).

3.          In this regard it has been decided to make applicable, limits on the upper side for market makers during market making process taking into consideration the issue size in the following manner –

Issue Size Buy quote exemption threshold (including mandatory initial inventory of 5% of issue size) Re-entry threshold for buy quotes                  (including mandatory initial inventory of 5% of issue size)
Upto ‚¹20 Crore 25% 24%
‚¹20 Crore to ‚¹50 Crore 20% 19%
‚¹50 Crore to ‚¹80 Crore 15% 14%
Above ‚¹80 Crore 12% 11%

4.          Further, the following shall apply to market makers while managing their inventory during the process of market making:

i.        The  exemption  from  threshold  shall  not  be  applicable  for  the  first  three months of market making and the market maker shall be required to provide two way quotes during this period irrespective of the level of holding.

ii.        Threshold for market making as prescribed will be inclusive of mandatory inventory of 5% of issue size at the time of allotment in the issue.

iii.        Any initial holdings over and above such 5% of issue size would not be counted towards the inventory levels prescribed.

iv.        Apart from the above mandatory inventory, only those shares which have been acquired on the platform of the exchange during market making process shall be counted towards the Market Maker’s threshold.

v.        Threshold limit will take into consideration, the inventory level across market makers.

vi.        The market maker shall give two way quotes till he reaches the upper limit threshold, thereafter he has the option to give only sell quotes.

vii.        Two  way  quotes  shall  be  resumed  the  moment  inventory  reaches  the prescribed re-entry threshold.

viii.        In view of the market maker obligation, there shall be no exemption/threshold on downside. However, in the event the market maker exhausts his inventory through   market   making  process  on  the  platform  of  the  exchange,  the concerned  stock   exchange  may  intimate  the  same  to  SEBI  after  due verification.

5.          All stock exchanges are advised to:

i.        make necessary amendments,  if any to the relevant  bye laws, rules and regulations for the implementation of the above decision.

ii.        disseminate the same on their website for easy access to the market makers and other market participants.

iii.       communicate to SEBI, the status of implementation of the provisions of this circular in the monthly development report.

6.          This circular is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992, read with Section 10 of the 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 shall come into effect immediately.

This circular is available on SEBI website at  www.sebi.gov.in

Yours faithfully,

Rajesh Kumar D

Deputy General Manager

Tele No 2644 9242

rajeshkd@sebi.gov.in

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