Market Surveillance plays a key role in ensuring the safety and integrity of the markets and a well-regulated market fosters investors’ confidence in its fairness and integrity by ensuring true and fair price discovery, prompt detection of market manipulations, and safety of the markets through risk containment measures and effective enforcement hence a Market Surveillance Division (MSD) was set up in SEBI in July 1995, to keep a proactive oversight on the surveillance activities of the stock exchanges
The MSD obtains the required data from the stock exchanges, newspaper reports, investor complaints, market intelligence, etc.
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MSD focuses on:
- Formulations of policies for surveillance systems and risk containment measures at the stock exchanges.
- Overseeing the surveillance activities of the stock exchanges.
- Initiating investigations.
- Preparation of reports and studies on market movements, which are later circulated to the ministry of finance.
There are many surveillance measures taken by the exchanges but today we are going to talk about ASM and GSM:
Additional Surveillance Measure (ASM) and Graded Surveillance Measure (GSM) are the initiatives taken by SEBI and Exchanges to impose trading limits on excessively volatile stocks with excessive volatility and enhance market integrity and safeguard the interest of investors.
Graded Surveillance Measure (GSM):
SEBI and Exchanges, to enhance market integrity and safeguard the interest of investors, have introduced various enhanced pre-emptive surveillance measures which monitor securities with unusual price fluctuations or poor financial health.
Main objectives:
- Alert and advice investors to be extra cautious regarding securities listed under GSM.
- Providing caution so that investors can carry out necessary due diligence.
Eligibility to get listed under GSM:
- Securities with the latest available Net worth than or equal to Rs. 10 crores.
- Securities with latest available Net Fixed Assets less than or equal to Rs. 25 crores.
- Securities with PE greater than 2 times PE of Benchmark Index or negative PE.
Some securities are excluded such as:
- Securities where the price discovery is yet to take place as per the provision of SEBI circulars CIR/MRD/DP/01/2012 and CIR/MRD/DP/02/2012 dated January 20, 2012.
- Securities already under suspension;
- Securities on which derivative products are available;
- Securities as a part of any index (NSE or BSE);
- Public Sector Enterprises and its subsidiaries, if available;
- Securities listed during last 1 year through Initial Public Offering (IPO);
- Securities which have paid a dividend for each of the last three preceding years;
- Securities with Institutional holding greater than 10% only if the following conditions are met; i) If the promoter entity has not offloaded any share in the last 5 years and ii) The current trading price of the security is within the range of High & Low price in last 3 years of the respective security.
- Securities listed through Scheme of Arrangement involving Merger / Demerger during last 1 year;
- In case of demerger, the following condition shall be applicable
- If the parent company is under the purview of GSM, the resultant demerged companies shall also attract GSM.
- If the parent company is not under the purview of GSM, the resultant demerged companies shall not be part of GSM at the time of demerger.
- In the case of a merger of companies, if any of the securities at the time of the merger are under the purview of GSM, then the same shall be continued on the resultant entity.
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Current Securities under GSM list;
There are various stages of GSM from I to IV as shown in the below table;
Additional Surveillance Measure (ASM):
ASM is also very similar to GSM as it aims to protect the investors’ interests but this is mainly focused on regulating the volatility and volume variation of securities.
Mainly, ASM monitors the following parameters;
- High Low Variation.
- Client Concentration.
- Close to Close Price Variation.
- Market Capitalization.
- Volume Variation.
- Delivery Percentage.
- No. of Unique PANs.
- PE.
There 2 frameworks under ASM:
Long term ASM framework: This applies to securities only if they fulfill the following criteria;
High–Low Price Variation in 3 months > (150% + Beta (β) of the stock * Nifty 50 variation) and concentration of Top 25 clients ≥ 25% of combined trading volume of NSE & BSE in the stock in the last 30 days and market Cap > Rs. 100 Cr as on review date.
Close–to–Close Price Variation in the last 60 trading days > (100% + Beta (β) of the stock * Nifty 50 variation) and concentration of Top 25 clients≥ 25% of combined trading volume of NSE & BSE in the stock in the last 30 days and market cap > Rs. 100 Cr as on review date.
Close–to–Close Price Variation in 365 days > (100% + Beta (β) of the stock * Nifty 50 variation) and high–low price variation in 365 days > (200% + Beta (β) of the stock * Nifty 50 variation) and market cap > Rs. 500 Cr as on review date and concentration of top 25 clients ≥ 25% of combined trading volume of NSE & BSE in the stock in the last 30 days.
The average daily volume in a month is ≥ 10,000 shares & monthly volume variation in stock is > 500% of Average daily volumes in preceding 3 months at both Exchanges and concentration of top 25 clients ≥ 25% of combined trading volume of NSE & BSE in the stock in last 30 days and Average Delivery % is less than 50% in last 3 months and market cap > Rs. 500 Cr as on review date and close–to–close price variation (based on corporate action adjusted prices) in last one month ≥ (50% + Beta (β) of the stock * Nifty 50 variation)
Exemption: Bulk / Block (maximum of buy /sell value), i.e., Average Volume of Bulk or Block Quantity / Average Volume of the Security greater than 50%
Close to Close price variation > 25% + (Beta * Nifty 50 Variation) in a month and pe negative OR > 2 times of pe of Nifty 50 and Market Cap < Rs. 500 Cr as on review date. Etc.
Short term ASM framework: Under this, there are 2 stages and securities which fulfill the criteria in the table below are listed;
Conclusion:
SEBI has imposed trading curbs on excessively volatile stocks and to enhance market integrity and safeguard the interest of investors and investors can use mainly these surveillance indicators be cautious around such securities and we would recommend investors to entirely avoid such securities, especially the ones listed under the higher stages of surveillance and if you still wanted to invest in such securities then thorough due diligence is recommended.
Disclaimer:
This article should not be construed as investment advise, please consult your Investment Adviser before making any sound investment decision. If you do not have one visit mymoneysage.in
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