Market makers function as essential institutional participants in India's capital market ecosystem, ensuring securities can be bought and sold smoothly without sharp price disruptions. These entities provide continuous liquidity by maintaining readiness to buy and sell specific stocks, playing a particularly crucial role in India's SME segment where liquidity varies significantly from large-cap stocks.

Regulatory Framework and Definition

Under Regulation 261 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, market making is compulsory for SME IPOs. A market maker must be a SEBI-registered stockbroker empanelled with either BSE SME or NSE Emerge, obligated to provide continuous two-way quotes in specific SME-listed securities.

Financial Requirements and Eligibility

SEBI has established strict eligibility criteria to ensure only capable entities undertake market making responsibilities. As per NSE Circular No. 65/2024 dated October 14, 2024, net worth requirements are structured based on the number of SME companies handled.

Market makers must be independent of the issuer and cannot be related to promoters or promoter groups, ensuring no conflict of interest exists.

Inventory Management and Trading Limits

Beyond the mandatory 5% inventory allocation, SEBI prescribes upper limits on market maker holdings based on IPO size. These thresholds determine when market makers must cease buy orders and focus on selling to reduce inventory levels.

Market Impact and Scope

Market makers significantly impact India's SME segment by reducing bid-ask gaps and preventing situations where investors cannot exit holdings. Their presence ensures retail investors holding shares worth less than ₹1 lakh can exit positions completely, as market makers must purchase entire holdings in one lot.

The role remains stock-specific rather than market-wide. Compulsory market making applies primarily to SME-listed stocks, while Main Board stocks typically enjoy adequate liquidity through higher trading volumes and institutional participation. Every SME company must appoint a market maker at IPO time, with the number capped at five per stock to ensure orderly competition.

Future Developments

Brokers have recently urged SEBI to extend equity-style market-making frameworks to commodity derivatives segments. This proposal aims to improve liquidity in commodity contracts such as gold, silver, and crude oil, potentially narrowing bid-ask spreads and reducing trading costs while fostering inter-exchange competition in India's commodity trading ecosystem.

Two prominent Indian companies have recently disclosed incidents involving inadvertent sharing of unpublished price-sensitive information through personal WhatsApp status updates, raising fresh concerns about digital-age compliance challenges under SEBI's insider trading regulations.

Hatsun Agro's WhatsApp Disclosure Incident

Hatsun Agro Product Ltd informed stock exchanges on January 5, 2026, that a senior executive had accidentally posted draft third-quarter financial results on their personal WhatsApp status. The incident occurred on January 4, 2026, at approximately 5:00 pm when the key managerial personnel was internally sharing the unaudited financial statements with the company's accounts department.

The company acknowledged that while the figures were in draft form and subject to change during the ongoing limited review process, they constituted potential Unpublished Price Sensitive Information (UPSI). The leaked information was viewed by around 19 people in the executive's contact list, including some company insiders.

ICICI Lombard's Similar Breach

Approximately one week later, ICICI Lombard General Insurance Company reported a comparable incident. On January 9, 2026, at around 5:44 pm, a designated person accidentally uploaded draft financial results details to their personal WhatsApp status.

The insurance company emphasized that the shared information was in draft form and subject to changes as the audit process remained ongoing. Despite the limited duration of exposure, ICICI Lombard chose to report the matter to stock exchanges as a precautionary measure.

Regulatory Framework and Compliance

Both incidents fall under SEBI's Prohibition of Insider Trading Regulations, which define insiders as individuals connected with companies or having access to unpublished price-sensitive information. This includes:

• Directors and employees
• Key managerial personnel
• Auditors and consultants
• Immediate relatives of the above

ICICI Lombard has cautioned investors and market participants against relying on any information regarding financial results unless formally disseminated after Board of Directors' approval of audited results.

Corporate Response and Policy Updates

Following the incident, Hatsun Agro's board of directors approved amendments to the company's "Code of Conduct and Code of Practices and Procedures for Fair Disclosure of Unpublished Price Sensitive Information" on January 19, 2026. This demonstrates the company's commitment to strengthening its disclosure framework and preventing future inadvertent breaches.

Market Integrity Implications

These incidents highlight emerging challenges for market regulators, stock exchanges, and corporate entities in the digital communication era. SEBI has been increasingly proactive in curbing insider trading violations and has established a dedicated department for investigating such breaches. The regulator has also mandated that companies implement comprehensive codes of conduct to prevent insider trading.

The voluntary disclosure of these incidents by both companies represents responsible corporate governance, though it underscores the need for enhanced digital communication protocols and more robust systems to prevent inadvertent information leaks across various communication platforms.