MUMBAI, Aug 31: The G P Gupta committee appointed by the Securities and Exchange Board of India (SEBI) today submitted its draft recommendations suggesting market making in specific shares satisfying an eligibility criteria.The panel's four-point eligibility criteria excluded the BSE Sensex shares and the S&P CNX Nifty stocks of the NSE, shares where the average number of trades is more than 50, shares where the value of trade on a daily basis is more than Rs 10 lakh and shares of a company not in operation and the networth erosion is beyond 50 per cent.The panel suggested the market making activity, which would be voluntary in nature, should provide two way quotes in the shares at regular intervals of thirty minutes with minimum depth of Rs 5,000 or one market lot which ever is higher, within five days of registration, the Sebi said in a statement.In the case of demat shares, for which there is no market lot, the same market lot as existed in the physical segment would be applicable for this purpose, it added. The member broker, who was allowed to act as market maker, would have to compete with other market makers in an exchange, for which maximum number of market makers should not exceed five per exchange, the panel said adding they should operate in a quote driven system.The registration of the market maker should be cancelled if he/she failed to provide two way quotes for more than three consecutive days, it suggested. The panel felt that introduction of market making could help investors by giving them assurance of liquidity and asked the Sebi to work out the detailed procedure.The exchanges should prescribe the capital adequacy commensurate with the type of shares, number of shares undertaken by the member for making market, infrastructure and volume of business of the member, it said adding margins should be applicable as in the normal market.The market maker should be eligible to avail of lending/ borrowing facilities under the stock lending scheme 1997, the panel said.The exchanges should pursue with their clearing banks to open special cells for lending to the market makers with adequate safeguards, it said and recommended strongly that RBI should encourage bank to participate in lending to them.
