The Securities and Exchange Board of India will allow stock exchanges to infuse liquidity into their futures and options (F&O) segments by a liquidity enhancement mechanism. The guidelines would be applicable only for the equity derivative segment of stock exchanges and not cover interest rate derivatives and currency futures . The proposal under consideration includes permitting market makers for the derivatives segments and providing cash incentives to traders.
Market making is aimed at infusing liquidity by way of two- way quotes (buy and sell) given by market makers. For market making to succeed there must be traders who are willing to buy or sell securities from such market makers.
