Market regulator Securities and Exchange Board of India on Thursday allowed stock exchanges to appoint market makers in the derivatives segment. These market makers, appointed and incentivised in a transparent manner, can operate for a maximum of six months.

The move will help Bombay Stock Exchange, which has been trying to prop up its near-zero market share in futures and options. “BSE has been pushing for this for two years. The new guidelines allow exchanges to increase liquidity in a transparent manner. This is how globally deep and liquid financial markets are created,” said Sayee Srinivasan, head product strategy, Bombay Stock Exchange.

Derivative contracts whose average trading volume is less than 0.1 per cent of the market cap of the underlying will be considered as illiquid. An average of 60 trading days will be considered for this purpose.

While most stock futures and options contracts on BSE will qualify under this category, several contracts on the NSE F&O segment are also likely to qualify for LES. According to BS Research Bureau, at least 27 securities among the stock futures were illiquid as per the definition of Sebi. An NSE spokesperson said NSE welcomed the circular and hoped to implement it soon.

According to the circular, the stock exchange shall ensure the LES, including any modification therein or its discontinuation, has the prior approval of its board. Sebi also directed the exchange's board to monitor the implementation and outcome of the schemes at quarterly intervals.