Securities and Exchange Board of India (SEBI) has issued circular number SEBI/HO/MRD/DSA/CIR/P/2017/95 dated 10th August, 2917 for SEBI (International Financial Services Centres) Guidelines, 2015-Liquidity Enhancement Scheme.
SEBI vide circular CIR/MRD/DP/14/2014 dated April 23, 2014 permitted stock exchanges to introduce liquidity enhancement schemes in the equity derivatives and equity cash segments to enhance liquidity in illiquid securities.
Clause 5 of the SEBI circular dated April 23, 2014 prescribes that the incentives under liquidity enhancement schemes shall be transparent and measurable.
Based on the internal discussions and consultations held with the stakeholders and given the fact that the stock exchanges at GIFT IFSC are in a nascent stage and do not have access to net profits/free reserves, it has been decided to grant an exemption to stock exchanges at IFSC from complying with clause 5.1 and 5.2 of SEBI circular dated April 23, 2014 subject to the condition that the exchange would create a reserve specifically to meet Liquidity Enhancement Schemes (LES) incentives/expenses based on the normative study of the LES in the domestic market and such reserves would not be included in the net worth calculation.
For quick reference, Clause 5 of the SEBI circular dated April 23, 2014 along with conditions mentioned in clause 5.1 and 5.2 are as follows:-
- The incentives under liquidity enhancement schemes shall be transparent and measurable, and may take either of the following two forms:
5.1. Discount in fees, adjustment in fees in other segments or cash payment – The incentives during a financial year shall not exceed 25% of the net profits or 25% of the free reserves of the stock exchange, whichever is higher, as per the audited financial statements of the preceding financial year.
5.2. Shares, including options and warrants, of the stock exchange – The shares that may accrue on exercise of warrants or options, given as incentives under all liquidity enhancement scheme, during a financial year, shall not exceed 25% of the issued and outstanding shares of the stock exchange as on the last day of the preceding financial year. Further, the stock exchange shall ensure that this is in compliance with the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 at all times.
Further, based on the aforesaid normative study, stock exchanges at IFSC shall furnish proposal for approval.
Other contents of the SEBI Circular No: CIR/MRD/DP/14/2014 dated April 23, 2014 will remain operative.