Understanding ASM and GSM in Stock Trading | BSE & NSE

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Additional Surveillance Measure (ASM): Definition and Purpose

Additional Surveillance Measure (ASM) is a regulatory framework defined by the Securities and Exchange Board of India (SEBI) and implemented by stock exchanges like BSE and NSE to monitor and regulate trading activities in specific securities and identify stocks that are trading in unusual patterns or might be getting manipulated. By subjecting these securities to enhanced surveillance, regulators can mitigate risks, protect investors from potential market abuses, and maintain overall market stability.

Criteria and Factors Leading to ASM

Securities that are included in the ASM framework are identified based on predefined criteria set by the exchanges. These criteria may include parameters such as trading volumes, price movements, market capitalisation, and corporate governance standards. Companies failing to meet these criteria may be placed under ASM.

ASM may be triggered by various factors, including:

  • Significant price volatility.
  • Unusual trading volumes.
  • Market manipulation or insider trading suspicions.
  • Financial irregularities or corporate governance concerns.

Types of ASM

ASM can be categorised into long-term and short-term additional surveillance measures based on the severity and duration of surveillance imposed. A long-term additional surveillance measure is typically imposed for extended periods. The criteria are usually more stringent and may include sustained underperformance, persistent irregularities in financial reporting, governance issues, or other fundamental concerns that affect the long-term viability of the security. 

On the other hand, short-term ASM may be imposed for temporary surveillance on specific events such as sudden price volatility, unusual trading volumes, regulatory investigations, or corporate announcements that may impact market stability. 

Impact of ASM

The imposition of ASM can have various impacts on securities:

  • Increased scrutiny and monitoring by exchanges.
  • Restricted trading activities such as price movement limits and margin requirements.
  • Enhanced disclosure requirements for companies under ASM.
  • Heightened investor awareness and confidence in regulated markets.

It is important to note that: 

  • Securities under ASM may experience increased volatility and reduced liquidity.
  • Investors should exercise caution and conduct thorough research before trading in ASM securities.
  • ASM status can change based on market dynamics and regulatory decisions.

Graded Surveillance Measure (GSM): Definition and Purpose

Apart from ASM, Graded Surveillance Measure (GSM) also stands as one of the regulatory measures, aimed at addressing specific concerns related to securities trading. It is put in place for securities displaying pricing discrepancies concerning their financial health and fundamental indicators such as earnings, book value, fixed assets, net worth, P/E ratio, and market capitalisation.

GSM serves a dual purpose. One is alerting and advising investors to exercise caution when dealing with identified securities. The second is, prompting market participants to conduct thorough due diligence before engaging in transactions involving these securities. It categorises securities into different levels based on their trading behaviour and imposes varying degrees of surveillance and restrictions accordingly.

Key Actions Under GSM

  • Transferring securities to the Trade for Trade segment
  • Mandating the deposit of additional funds as a Surveillance Deposit
  • Limiting trading to once a week
  • Implementing price freezes on the upper trading limit

These actions are subject to predefined criteria and can be implemented with short notice, reflecting the commitment to maintaining market integrity and investor confidence. The outlined surveillance measures are complementary to other regulatory actions that exchanges and SEBI may undertake on a case-by-case or holistic basis, depending on prevailing market conditions and circumstances.

The identification and review of securities for GSM are conducted quarterly, based on the latest available financial results submitted by companies under SEBI regulations. This ensures a timely and proactive approach to market surveillance.

GSM entails a graded approach to surveillance, with different stages triggering specific actions such as margin rates, trading frequency, and additional deposit requirements, depending on the severity of the concerns identified. 

List of Stocks Currently in ASM

https://www.nseindia.com/reports/asm

List of Stocks Currently in GSM

https://www.nseindia.com/reports/gsm

Conclusion

ASM and GSM are vital regulatory mechanisms employed by stock exchanges like BSE and NSE to ensure fair and transparent trading practices while safeguarding investor interests and maintaining market integrity. These measures subject identified securities to enhanced scrutiny, trading restrictions, and heightened disclosure requirements, aiming to mitigate risks and maintain overall market stability. 

Investors should exercise caution when trading in ASM and GSM securities, understanding the potential impacts of heightened scrutiny and volatility.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

For All Disclaimers Click Here: https://bit.ly/3Tcsfuc

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Frequently Asked Questions

Are all securities subject to ASM?

Answer Field

No, ASM is imposed selectively on securities that show abnormal trading behaviour or are perceived to be manipulated. Moreover, certain securities are exempt from the Long Term ASM shortlisting process. This includes Public Sector Enterprises and Banks, securities already under the Graded Surveillance Measure (GSM) list, those with derivative products available, and those already under the Trade for Trade segment.

Does trading in ASM securities carry higher risks?

Answer Field

Trading in ASM securities may carry higher risks due to increased volatility and reduced liquidity. Investors should exercise caution.

How often are securities reviewed for ASM status?

Answer Field

Securities are regularly reviewed based on predefined criteria, and ASM status may change accordingly. Once a security is included in the ASM list, it is reviewed on a weekly basis for each stage and for movement within stages.

What are the margins applicable on short-term ASM stocks at different stages?

Answer Field

Margins on ASM stocks vary depending on the stage. In Stage 1, the maximum margin is capped at 100% while the applicable margin is the higher one of – 1.5x or 40% of the existing margin. Higher margins are applicable at ASM Stage 2 compared to Stage 1, reflecting the increased risk associated with the stock. In Stage 2, it is the higher one of – 2.5x or 80% of the existing margin.

Can a stock still be bought that is in ASM?

Answer Field

Yes, stocks under ASM can still be bought and sold in the market under the cash segment. However, investors should be aware of the increased risk and potential trading restrictions associated with ASM stocks.

Can I sell my stock which moved to ASM?

Answer Field

Yes, investors can sell their stocks that have moved to ASM. However, they should consider the implications of trading in ASM stocks, such as increased volatility and potential trading restrictions.

What to do if my stock is in ASM?

Answer Field

If your stock is placed under ASM, it's essential to stay informed about the reasons behind its classification and any associated trading restrictions. Consider consulting with your broker or financial advisor to evaluate your options and make informed decisions regarding your investment.

Are there any exemptions to the GSM classification?

Answer Field

Yes, certain securities, such as those under suspension or part of specific indices, may be exempted from GSM classification. This includes securities where price discovery has not occurred as per SEBI circulars, securities already under suspension, those with available derivative products, securities included in any NSE or BSE index, Public Sector Enterprises and their subsidiaries if available, securities listed through IPO in the last year, and securities that have paid dividends for the past three years.

How does GSM affect the trading of a stock?

Answer Field

GSM affects stock trading by subjecting specific securities to enhanced surveillance and regulatory measures. This may include trading restrictions, increased margin requirements, and heightened scrutiny, impacting liquidity and trading dynamics.

What are the margins applicable to GSM stocks at different stages?

Answer Field

Margins on GSM stocks vary depending on the stage of surveillance. Typically, higher margins are applicable at advanced stages of GSM, reflecting the increased risk associated with these securities.

Can investors still buy or sell stocks that are under GSM?

Answer Field

Yes, investors can buy or sell stocks that are under GSM, but under the cash segment. However, you should be aware of any trading restrictions, increased volatility, or liquidity concerns associated with GSM securities.

Are there any restrictions or limitations for trading stocks under GSM?

Answer Field

Yes, trading in GSM stocks may be subject to restrictions such as price bands, margin requirements, or disclosure obligations. These measures aim to mitigate risks and maintain market integrity.

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