Summary of this article
Top brokers approached Sebi to harmonise market-making rules across equity and commodity derivatives
The proposal aims to boost liquidity in commodities trading
Top brokers have requested the Securities and Exchange Board of India (Sebi) to harmonise rules on market-making across equity and commodity derivatives, a week after the Metropolitan Stock Exchange of India (MSEI) announced the introduction of market-making for a list of stocks, a report by Mint said. If the proposal is implemented, it has the potential to challenge the near-monopoly of the Multi-Commodity Exchange (MCX) in India's commodity derivatives market.
The Association of National Exchanges Members of India (ANMI) has requested Sebi to extend market-making for the commodity derivatives segment (CDS), similar to equity derivatives. Total turnover in India’s CDS market was at Rs. 95.58 lakh crore in FY26 till November. Compared to this, turnover in the equity cash market stood at Rs. 180.73 lakh crore.
Effective market-making in a particular segment will allow exchanges to incentivise some large brokers or entities to offer competitive quotes for buy and sell prices, in compliance with the regulations of Sebi. This, in turn, will help in attracting more traders to the market, increase liquidity and competitiveness of the derivative, and reduce the monopoly of a single participant or an exchange.
Currently, exchanges follow a liquidity enhancement scheme (LES), under which they are free to offer market-making to launch or revive any equity cash segment on their exchange. This can be done by a particular exchange even if those stocks are liquid on other exchanges. However, the exchanges cannot offer the same in commodity contracts, which have already become liquid on other exchanges, unless both the exchanges offer LES on the same contract.
This essentially means that an existing exchange can offer LES on stocks which are liquid on other exchanges, say on NSE or BSE. However, NSE cannot offer LES on commodity derivative contracts which are liquid on MCX, unless MCX also runs LES on these commodity contracts.
For this purpose, extending the market-marking rules to equities would help “foster inter-exchange competition and deepen markets for investor benefit", K. Suresh, national president of ANMI, said in the request to Sebi. “The Sebi rule facilitating MSEI's introduction of market making is praiseworthy, as it recognises that liquidity is a prerequisite for the survival and growth of any exchange.”
Among the top brokers who are part of ANMI are Zerodha, Groww, ICICI Securities, Motilal Oswal Financial Services and Angel One, regularly trading across NSE, BSE, and MCX.
A week ago, MSEI said in a circular that it was appointing market-makers in 130 stocks to drive liquidity. These stocks include Nifty 50 heavyweights like HDFC Bank, Reliance Industries, ICICI Bank, Bharti Airtel and Infosys.
Extending “equity-style LES” to CDS to foster “genuine competition and promote dual-venue markets” was only fair, as under a unified exchange licence framework, brokers can offer their clients both commodities and equities trading under a single entity, said Suresh. If Sebi agrees to the brokers’ proposal, exchanges such as NSE and BSE will be able to incentivise brokers to offer CDS market-making on them, even if these commodity contracts are liquid on MCX. Brokers hope that this move will, in turn, boost liquidity in commodity contracts and attract more traders to the market.
"If market-making is indeed permitted in CDS, it could end up benefiting market participants as they would be able to choose an exchange which offers the tightest bid-ask spreads, which, in turn, would reduce their impact cost and optimise returns. If another bigger player can succeed in infusing liquidity, it could end up garnering some share from the incumbent, or the total pie would grow to the benefit of all constituents," Rajesh Palviya, head of derivatives and technical research at Axis Securities, told the paper.
MCX currently commands 99 per cent of CDS. Meanwhile, NCDEX, NSE and BSE combined account for only 1 per cent of the market, data by Sebi for FY26 till November showed. Compared to this, NSE’s market share in the equity cash segment accounted for 92.9 per cent, followed by BSE at 7 per cent, and MSEI at less than 0.1 per cent.
