Leading stock exchange BSE will launch a new liquidity enhancement incentive programme on equity-based exchange traded funds (ETFs) from September 1.
According to SEBI regulations, stock exchanges can introduce incentive schemes for brokers and intermediaries to enhance liquidity in illiquid securities in the equity cash and derivative segments.
“The exchange shall launch new liquidity enhancement incentive programme (LEIPS) on equity ETFs with effect from September 1, 2015,” BSE said in a circular dated August 3.
“The programme is open for all active trading members of equity segment who shall fulfil the stipulated obligations and there shall be no separate registration required for participating in LEIPS on equity ETFs,” it added.
The latest announcement by BSE is in line with revised SEBI guidelines on April 23 last year for LEIPS in the equity cash and equity derivatives segment.
ETFs on underlying index — S&P BSE Sensex, S&P BSE 100 and S&P BSE CPSE Index — would be the eligible equity ETFs under the programme.
“During the period of LEIPS on ETFs, if new ETF (based on underlying as S&P BSE Sensex, S&P BSE 100 and S&P BSE CPSE Index) gets listed on BSE, it shall be automatically eligible for the programme,” it said.
LEIPS on equity ETFs programme shall remain in force till March 31, 2016, BSE added.
Under the new programme, incentives would be in terms of transaction charges rebate.
“All the trading members who qualify as market maker under the programme are eligible for rebate of transaction charges,” BSE added.
“The incentives... shall be calculated on daily basis and shall be settled against transaction charges of equity segment at the end of the month,” the exchange said.
As per the revised guidelines by SEBI last year, the period of liquidity enhancement schemes of stock exchanges was limited to a maximum of three years.
Also, the scheme is required to specify the incentives available to market makers/liquidity providers and such incentives include discount as well as adjustment in fees in other segments, cash payment or issue of shares, including options and warrants.
Regarding illiquid securities, SEBI said the stock exchange would formulate its own benchmarks for selecting such securities for liquidity enhancement.