In order to kick start the SME exchanges in India ,Securities and Exchange Board of India (Sebi) has come out with specific guidelines for market makers.

SEBI has made market making mandatory in respect of all scrips listed and traded on SME exchanges. Member brokers of an exchange desirous of acting as market makers would need to get themselves registered and follow the criteria laid down by exchanges.

A market maker is a bank or brokerage company that ensures proper order execution by being present in the market with a firm ask and bid price so that a seller of a stock does not end up with no one on the other side. This will help in creating depth  and liquidty in the market.

The market makers would be required to provide 2-way quote for 75% of the time in a day. The minimum depth of the quote shall be Rs 1 lakh. However, investors with holdings of value less than Rs 1 lakh shall be allowed to offer their holding to the market maker in that scrip, provided that he sells his entire holding in that scrip in one lot to the selling broker.

There would not be more than five market makers for a particular scrip.

The selection of market makers would be based on objective criteria to be evolved by the exchange, which may include capital adequacy, networth, infrastructure, minimum volume of business, etc. The market maker must ensure execution of the order at the quoted price and quantity for all the quotes provided by him. The market maker may compete with other market makers for better quotes to the investors.

The price bands and the maximum spread between bid and ask price of quotes would be decided by the exchanges.