The Securities and Exchange Board of India (SEBI) and the domestic stock exchanges in India have recently introduced the Additional Surveillance Measures (ASM).
What is ASM?
It is a surveillance method in which the stock exchanges impose trading curbs on excessively volatile stocks in the market.
Criteria for volatile stocks
Currently, five criteria are set to identify volatile stocks for additional surveillance –
- Price variation between the high and the low price (called ‘spread’) in the last three months should be 200 percent of more and the concentration of top 25 clients in the stock should be 30 percent or more;
- The spread should be 200 percent or more and the stock should have hit the price band of 30 percent or more times;
- The stock should have a negative PE (Price-Earning) and should have shown a price movement of 100 percent or more in the last 30 trading days and the concentration of top 25 clients should be 30 percent or more;
- A stock with a market capitalisation of over Rs 500 crore whose price should have move more than 100 percent, spread more than 200 percent (in the last 365 days) and greater than 50 percent in the last 90 trading days;
- A stock with a market capitalisation of more than Rs 500 crore where the concentration of top 25 clients in a quarter should be greater than or equal to 50 percent and five or more of these clients should have 50 percent or more of their trading activity in it.
Stocks under ASM
Any listed stock can be kept under ASM but the exchanges have granted special exemptions to Public Sector Undertakings, stocks under Graded Surveillance Measure or the trade-to-trade segment and the securities with derivative products.
- A stock kept under ASM net attracts stricter exchange rules on intra-day price movements.
- Example – If a stock named A is put under the ASM list today (i.e. July 31), it will be moved to a 5 percent price band on August 1. It means that its price can move only 5 percent above or lower than the previous day’s closing level. How it is done? The stock will be halted from trading for the rest of the day if it breaches the 5 percent ceiling. From the fifth day (i.e. August 7), 100 percent margin money will be required to trade into the Stock A.
- A stock in ASM will be moved to trade-to-trade settlement if the PE (Price-Earning) ratio shoots above 100. It will be subsequently moved out of the ASM if the PE falls below 10 or below the ration of Nifty 500.
- These curbs will discourage the speculators and intra-day traders from taking heavy positions in stocks that generally lead to liquidity evaporation causing the stock prices to drop.
- These additional surveillance measures would help against the situations of panic when mass selling is witnessed, causing sharp fall in the price of stock.
Source – The Hindu Business Line
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