Liquidity Enhancement scheme

SEBI circular dated 26th July, 2019

1. SEBI vide circular SEBI/HO/CDMRD/DMP/CIR/P/2018/55 dated March 26, 2018
had issued guidelines for LES in Commodity Derivatives Contracts subject to
certain conditions stipulated vide Circular No. CIR/MRD/DP/14/2014 dated April
23, 2014.
2. The manner in which exchanges can provide LES under the extant circular No.
CIR/MRD/DP/14/2014 dated April 23, 2014 is as under:
‘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.’
3. An exchange in early years of its formation/commencement of business may not
be able to generate profits or have free reserves from business operations. In this
regard, it has now been decided to exempt such exchanges, during their first five
years of operation from the date of SEBI’s approval for commencement /
recommencement of their business, from the applicability of clauses 5.1 and 5.2
of said SEBI circular No. CIR/MRD/DP/14/2014 dated April 23, 2014, subject to
adherence to the following conditions:
3.1.The yearly incentives that such an exchange can earmark for LES shall not
exceed 25% of the audited net-worth of the said exchange as on the last day
of the previous financial year.
3.2.Such exchange shall create a reserve specifically to meet its LES
incentives/expenses and transfer funds to such reserve accordingly. However,
such reserves shall not be included in the calculation of Exchange net worth.
3.3.Such exchange however shall continuously comply with the minimum networth requirement as per Securities Contracts (Regulation) (Stock Exchanges
and Clearing Corporations) Regulations, 2018.
4. The provisions of this circular shall be effective from the date of this circular.
5. This circular is issued in exercise of powers conferred under Section 11 (1) of the
Securities and Exchange Board of India Act, 1992, to protect the interests of
investors in securities and to promote the development of, and to regulate the
securities market.
6. Exchanges are advised to:
i. make necessary amendments to the relevant bye-laws, rules and regulations.
ii. bring the provisions of this circular to the notice of the stock brokers of the
Exchange and also to disseminate the same on their website.
iii. communicate to SEBI, the status of the implementation of the provisions of this
circular
7. This circular is available on SEBI website http://www.sebi.gov.in under the category
“Circulars” and “Info for Commodity Derivatives”.

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