Committee chairman GP Gupta has favoured a host of measures, including introduction of market makers for illiquid and semi-liquid shares to improve their liquidity. "We would ask all the bourses to categorise listed stock into three categories: least liquid, less liquid and very liquid scrips, and for each of these categories special trading facilities or rules would be allowed for enhancing liquidity through market making," said Gupta, who heads Industrial Development Bank of India (IDBI).

The committee, constituted last year to suggest ways to improve liquidity at stock exchanges and trading of particularly illiquid stock, will finalise its recommendations next month, he said. "The report is almost through. I have to make certain modifications which will be completed in aweek's time," he said.

The committee is also expected to suggest certain net worth criteria for market makers. While no market making would be allowed for a net worth of less than Rs 2 crore, for members who have a net worth of Rs 2 to 5 crore, market making would be allowed in up to 10 scrips.

For a net worth of Rs 5 to 10 crore, the market making would be allowed in up to 25 scrips and for a net worth above Rs 10 crore, there would be no limit on the number of scrips on which the facility could be allowed.

The criteria for appointing market makers would, however, be on a voluntary basis and any member of the exchange who wants to be a market maker for a designated scrip would be allowed to do so. The list of market makers for each scrip would also be disclosed to the investors, Gupta said.

He said a market maker would be allowed to provide 2-way quotes for a minimum of 10 lots of 100 shares on a daily basis and once a market maker completes this obligation, they would have the freedom to stop givingthe quotes for the day.

The committee was also in favour of allowing market makers to de-register voluntarily from a particular scrip, provided he has fulfils his obligations for a minimum period of three months and gives a one-month notice to the exchange.

If a market maker fails to fulfill his obligations as a market maker for more than 10 trading days, he will automatically stand de-registered from that scrip.

The committee is also considering fixing a limit on the number of market makers for a scrip in order to attach a scarcity value to the business of market making. In the category of least traded scrips, a maximum of four market makers would be allowed per scrip for the first one year and in category of less traded stock, the upper limit would be kept at six per scrip for the first year.

To avoid a monopoly situation, there should be a minimum of two market makers per scrip, Gupta said adding that it may be difficult to enforce this in case there was lack of interest from adequate number ofcandidates.

He said the committee was of the view that the maximum spread between two-way quotes should not exceed 10 per cent of the previous day's closing price and further no more than 50 per cent of the market maker's quotations updates may occur without being accompanied by a trade execution of not less than one unit of trading.

To allow market makers to provide quotations on a continuous basis, the committee would also suggest relaxations in price band limits set by SEBI. The exchanges can propose to SEBI the exact nature of relaxation in each category.

The committee was also in favour of allowing market makers in debt instruments in corporate debt traded at stock exchanges to enhance liquidity in these instruments and the broad guidelines would be same as those proposed to equity, Gupta said.

For initial public offerings IPOs), the committee was in favour of compulsory market-making for a period of one year and the lead manager should make market in the issue or be responsible for appointingone of the the two market makers for the scrip.

Gupta said that though the committee was in favour of extending the settlement cycle for the least traded category of scrips, now that SEBI was in favour of rolling settlements, he would make necessary changes in the report.