Market making inescapable: Mayya panel

You think jobbers engaged in market making for 'Dharavi' scrips (they were also dubbed 'pariah' stocks) in the erstwhile outcry system are not good for the market?

So do sattawalas who intend to make money by buying these shares cheap and then selling them to the promoters at high rates?

Well, M R Mayya, chairman of Interconnected Stock Exchange of India (ISE), begs to differ.

The Mayya Committee report on enhancing liquidity of Indian stock market has stated that jobbers and sattawalas have rendered great service to bourses: they were creating the market for at least some stocks which were otherwise illiquid.

And most of the stocks were of companies having huge real estate and high cash reserves.

The report, which was presented to the Securities and Exchange Board of India chairman in New Delhi last month, observed that liquidity was required for the proposed IndoNext model - a parallel trading platform being envisaged on the lines of EuroNext.

Mayya said market making was a nasty word in India but the activity was a crucial step towards reviving the capital market.

He added the Naresh Chandra Committee report, which suggested that banks and mutual funds should buy small holdings of individual investors, was a step that would increase liquidity in the market.

The importance of enhancing liquidity was borne out by data. "The top 10 scrips account for 85 per cent of the volume of trading. The top 100 stocks generated 99 per cent business of total market while the balance 10,000 scrips contribute only one per cent," he said.

The Mayya Committee report suggested several initiatives, including fiscal incentives for market making, from the government.

"The finance minister appeared to be very interested in revival of the market. I think the ministry will so something to encourage market making," he said.

But a package of fiscal incentives for market makers, he admitted, would take some time to be rolled out.

However, the setting up of IndoNext would not wait for the sanction of incentives, if at all. "In all likelihood, IndoNext will come into operation in six months," he said.

In fact, Federation of Indian Stock Exchanges would meet Saturday to finalise the details of setting up IndoNext.

FISE had floated was the IndoNext concept, inspired by EuroNext which was set up by stock exchanges of Paris, Amsterdam and Brussels.

Mayya was the chairman of the FISE appointed committee which proposed setting up of IndoNext. The issues to be deliberated include whether to make IndoNext a part of BSE and if so, the distribution of revenue between BSE and other regional exchanges. FISE has proposed some 3,000 stocks that could be traded on IndoNext.

Meanwhile, Mayya said investors education in regional languages was a must to strengthen capital markets.

"All have understood the importance of investors education. But we should take the initiate forward by educating investors through their mother tongues. Regional exchanges can play a great role in this," he said.

ISE, he said, has started educating investors in regional language. BSE, too, has taken initiatives in this direction.