Specific Investor Scenario

You try to buy a mid-cap stock on a smaller exchange, but the lowest seller is ā‚¹10 away from the last traded price. This ā€œgapā€ is called a Bid-Ask Spread. If you buy at that price, youā€™ve already lost money the moment the trade executes. How is the Metropolitan Stock Exchange (MSEI) fixing this problem for its 2026 relaunch?

Quick Answer

MSEI is using a Liquidity Enhancement Scheme (LES). This is a SEBI-approved mechanism where the exchange pays authorized ā€œMarket Makersā€ to stay present in the order book with both buy and sell orders at all times.

Official Fact: According to the SEBI Master Circular for Stock Exchanges, LES programs are permitted only in securities and derivatives segments that have low liquidity, with the goal of fostering a healthy trading ecosystem until natural retail volume takes over.

Regulatory Context

The LES is strictly regulated by SEBI. Key rules include:

  1. Incentives: Exchanges can provide incentives (like reduced transaction fees or cash payments) to Market Makers.
  2. Performance Monitoring: Market Makers must fulfill ā€œobligations,ā€ such as maintaining a maximum spread (e.g., not more than 1%) and a minimum order size for a certain percentage of the trading day.
  3. Transparency: All LES programs must be publicly disclosed with their start and end dates.

How LES Benefits You, the Retail Trader

  1. Narrower Spreads: Because Market Makers are competing to provide the ā€œbest bidā€ and ā€œbest offer,ā€ you get a price much closer to the NSE or BSE price.
  2. Guaranteed Counterparty: Even if no other retail investor is selling at that exact moment, the Market Makerā€™s system will be there to take the other side of your trade.
  3. Lower Slippage: slippage is the difference between the price you expect to pay and the price you actually pay. LES significantly reduces slippage for the 130 relaunch stocks.

Practical Implication: Liquidity Risk Management

Even with an LES in place, MSEI liquidity is still evolving. Here is how to manage your risk:

  • Use Limit Orders: Never place a Market Order on an exchange with lower volumes. Always use a Limit Order so you control the maximum price youā€™ll pay.
  • Check Market Depth: Before trading, look at the ā€œTop 5 Bids/Asksā€ in your app. Ensure the quantities being offered by the Market Maker are sufficient for your order size.
  • Start Small: For the first few weeks of the relaunch, trade smaller quantities to get a feel for the execution speed and ā€œfillā€ quality.

Action Items for Investors

  1. Identify LES Stocks: Check the official MSEI list to see which stocks are currently covered by the scheme.
  2. Compare Across Exchanges: If you have an order for 500 shares, check if the price on MSEI (after LES) is actually better than on NSE. Sometimes, competition produces better deals for you.
  3. Monitor Official Announcements: These schemes are often time-bound (e.g., for 6 months). Stay updated on when a scheme might expire.

Current Liquidity Enhancement Schemes on MSEI: msei.in/Markets/Liquidity-Enhancement-Scheme

Verify current status at nseindia.com, bseindia.com, or msei.in before trading.