Will brokers' push for market-making pump up commodity trade liquidity?

Just a week after the Metropolitan Stock Exchange of India (MSEI) announced that it was introducing market making for a list of stocks , in compliance with Sebi rules , the Association of National Exchanges Members of India (ANMI) requested the regulator to extend equity-style market making to the commodity derivatives segment (CDS)

through a communication on Friday. Total CDS turnover in India's CDS market stood at ₹95.58 trillion in FY26 through November, compared with ₹180.73 trillion in the equity cash market.

Market-making allows an exchange to incentivize certain large brokers or financial firms in compliance with Sebi regulations to offer competitive buy and sell quotes, which in turn attracts more traders, increasing liquidity and competition and reducing dominance of any single exchange. Currently, exchanges are free to offer market-making—formally called a liquidity enhancement scheme (LES)—to launch or revive an equity cash segment, even when those stocks are liquid on other leading exchanges; however, they can't offer it in commodity contracts already liquid on another existing bourse—unless that exchange also offers LES on the same contract.

Essentially, this means while an existing exchange can offer LES in stocks which are liquid on, say NSE or BSE, the latter can't offer LES on either energy or metals derivative contracts that are liquid on, say, MCX—unless MCX itself runs LES on those commodity contracts.

Extending the market-making option to equities would "foster inter-exchange competition and deepen markets for investor benefit", said K. Suresh, national president of ANMI, who wrote to the regulator on Friday.

"The Sebi rule facilitating MSEI's introduction of market making is praiseworthy, as it recognizes that liquidity is a pre-requisite for the survival and growth of any exchange," said Suresh. ANMI's members include brokers like Zerodha, Groww, ICICI Securities, Motilal Oswal Financial Services and Angel One, who trade on bourses like NSE, BSE and MCX.

On 8 January , MSEI in a circular said it was appointing market-makers to drive liquidity in 130 stocks including HDFC Bank, Reliance Industries, ICICI Bank, Bharti Airtel and Infosys—the heavyweights in the Nifty 50 and Sensex 30 indices up to 30 June . The MSEI, which is keen on reviving its equities segment, informed the public about its LES in the equities segment through a circular on 8 January.

Queries sent to Sebi remained unanswered. Incidentally, Sebi chairman Tuhin Kanta Pandey said at an event last month that a regulatory panel would work on deepening non-farm based commodity derivatives segment (CDS) to increase participation from institutions.

Suresh said that in a unified exchange licence framework, where brokers can offer their clients both commodities and equities trading under a single entity, it was only fair to extend the "equity-style LES " to CDS to foster "genuine competition and promote dual-venue markets." If Sebi indeed agrees to the proposal, exchanges such as NSE and BSE could incentivize brokers to offer market-making in CDS, even if the contract is already liquid on the dominant exchange, in this case MCX. This would create liquidity in these contracts, attracting traders.

The unified licence framework became effective in 2017 after the merger of erstwhile commodity derivatives regulator Forward Markets Commission with Sebi in September 2015, after a payment crisis hit commodity spot exchange NSEL in July 2013. Prior to that, a broker offering equities and equity derivatives had to create separate subsidiaries for offering commodity derivatives trading .

A technical expert spelt out the potential impact of such a proposal taking effect.

"If market-making is indeed permitted in CDS, it could end up benefiting market participants as they would be able to chose an exchange which offers the tightest bid-ask spreads which, in turn, would reduce their impact cost and optimize 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," said Rajesh Palviya, head of derivatives and technical research at Axis Securities.

Bid-ask spread decides the cost for a client of executing a trade on a particular stock or commodity contract. The tighter the spread, the easier for a client to enter and exit a counter . A wider spread results in reducing liquidity on the counter .

Currently, MCX commands 99% of CDS, while NCDEX, NSE and BSE jointly account for the rest, Sebi data for FY26 through November showed. Meanwhile, in the equities cash segment, NSE's market share was 92.99%, followed by BSE (7%) and MSEI at a negligible turnover level.

Suresh of ANMI added that to protect market integrity in CDS, caps and time limits could be imposed for market-making, whose outcomes can be measured not just by pure volumes growth but through focus on bid-ask spreads and market depth.

Both MCX and BSE are listed capital market entities . The MCX stock surged to a fresh record high of ₹2,499 apiece on Friday, before paring gains to close up a percent at ₹2,446 on Friday, while BSE fell a percent to ₹2,808.7.