SEBI introduced a market surveillance division in 1995 to enhance integrity and safeguard investors’ interests. This division monitors market activities, identifies price volatility, analyses causes, and oversees the surveillance activities of the stock exchanges. Some of these pre-emptive measures include periodic call auctions, reduction in the price band, GSM, ASM, and transfer of securities to the Trade for Trade segment.
In the below article, we will talk about Additional Surveillance Measures (ASM) and GSM (Graded Surveillance Measure).
What Is ASM in the Stock Market?
ASM mainly focuses on controlling security volatility. The objective behind ASM is to alert and advise investors to be extra cautious while dealing in ASM securities. SEBI also advises market participants to carry out necessary due diligence while dealing in securities falling under the ASM list.
Additional Surveillance Measures (ASM) are specific limitations that are imposed on stocks experiencing high price fluctuations that are uncharacteristic of the said stock. Such ASM stocks are further classified into long-term or short-term ASM frameworks based on objective criteria:
- High Low Variation
- Close to Close Price Variation
- Market Capitalisation
- Volume Variation
- Client Concentration
- Delivery Percentage
- No. of Unique PANs
- Price-to-Earnings (PE) Ratio
How Are Securities Selected for the ASM List?
ASM comprises two main types: Long-term ASM and Short-term ASM. Let us discuss both in brief:
Long-Term ASM List
The stocks that meet certain requirements regarding price fluctuation, client concentration, and other factors are included in the long-term ASM list. Below is the breakdown of the four main conditions:
Condition 1:
- In the previous 3 months, corporate action adjusted-price variation exceeds (150% + Beta of the stock * Nifty 50 variation).
- The top 25 clients accounted for 25% of the combined stock trading volume of NSE and BSE in the past 30 days.
- Market capitalisation exceeds ₹100 crore as of review.
Condition 2:
- Corporate action adjusted price variation in the last 60 trading days exceeds (100% + Beta of the stock * Nifty 50 variation).
- The top 25 clients accounted for 25% of the combined stock trading volume of NSE and BSE in the past 30 days.
- Market capitalisation exceeds ₹100 crore as of review.
Condition 3:
- Corporate action adjusted price variation in the last 365 trading days exceeds (100% + Beta of the stock * Nifty 50 variation).
- High-Low Price Variation exceeds (200% + Beta (B) of the stock * Nifty 50 variation),
- The top 25 clients account for 25% of the combined stock trading volume of NSE & BSE in the past 30 days.
- Market capitalisation exceeds ₹500 crore as of review.
Condition 4:
- The average daily volume is equivalent to at least 10,000 shares in a month.
- Monthly volume variation exceeds 500% of average daily volumes in the preceding 3 months.
- The top 25 clients account for 25% of the combined stock trading volume of NSE & BSE in the past 30 days.
- Average Delivery is below 50% in the last 3 months.
- Close-to-Close price variation in the last one month exceeds (50% + Beta of the stock * Nifty 50 variation).
- Market capitalisation exceeds ₹500 crore as of review.
Long-Term ASM Stages
Under ASM, stocks are subject to stage-wise surveillance action after inclusion in the ASM framework. Here are the four ASM stages:
| Long-Term ASM Stage | Significance | Action |
| 1 | Securities are identified based on entry criteria | Applicable margin shall be 100% from T+3 day |
| 2 | Stocks which are already in Stage I of long-term ASM, satisfying the following conditions in 5 consecutive trading days: 1. Close–to–Close Variation (based on corporate action adjusted prices) ≥ (25% + Beta (β) of the stock * Nifty 50 variation) AND 2. Concentration of Top 25 clients ≥ 30% of combined trading volume of NSE & BSE in the stock in last 30 days. | Reduction of price band to next lower level and applicable margin shall be 100% from T+3 day. |
| 3 | Stocks which are already in Stage II of long-term ASM, satisfying the following conditions in 5 consecutive trading days:
1. Close–to–Close Variation ≥ (25% + Beta (β) of the stock * Nifty 50 variation) AND 2. The concentration of Top 25 clients accounts≥ 30% of the combined trading volume of NSE & BSE in the stock in the last 30 days. |
Further reduction of price band to the next lower level and applicable margin shall be 100% from T+3 day |
| 4 | Stocks which are already in Stage III of long-term ASM, satisfying the following conditions in 5 consecutive trading days:
1. Close–to–Close Variation (based on corporate action adjusted prices) ≥ (25% + Beta (β) of the stock * Nifty 50 variation) AND 2. Concentration of Top 25 clients ≥ 30% of combined trading volume of NSE & BSE in the stock in the last 30 days. |
Settlement shall be on a gross basis with a 100% margin for all clients and a 5% price band. |
Short-Term ASM List
The criteria for the short-term ASM list might vary and are usually based on specific market conditions and short-term trends. It categorises stocks based on certain criteria and applies specific margin rates to them. The stocks are allocated to two stages, Stage 1 and Stage 2, each with different applicable margin rates.
Stage 1:
- Stocks in this category are given a chance to provide clarification.
- Information about the stock being added to the Short-Term ASM is displayed on the website to update investors.
- The applicable margin rate is 1.5 times the existing margin or 40%, whichever is higher.
- The maximum margin is capped at 100%.
Stage 2:
- Stocks in this stage have a higher applicable margin rate.
- The margin rate is 2.5 times the existing margin or 80%, whichever is higher.
- The maximum margin is capped at 100%.
Exemption to ASM List: Average Volume of Bulk or Block Quantity / Security greater than 50%.
However, the following securities shall be excluded from the ASM List:
- Securities are already under the Graded Surveillance Measure (GSM).
- PSEs and PSBs.
- Securities on which derivative products are available.
- Securities are already under the Trade for Trade segment.
After completing 90 calendar days in the long-term ASM Framework, securities are eligible for a stage-wise exit from the framework every week.
How To Check the List of Stocks Under ASM?
You can easily check the list of ASM stocks on NSE by clicking here: https://www.nseindia.com/reports/asm.
Impact of ASM on Investors
While trading or investing in the securities market, investors should consider stocks falling under the ASM list as a major red flag due to their abnormal price movements and deteriorating financial health. The ASM has both positive and negative impacts on investors. Positive impacts include enhanced market integrity, risk mitigation, and investor protection. Negative impacts include reduced liquidity, increased transaction costs and discouragement of risk-taking.
Overall, additional surveillance measures play a crucial role in maintaining market stability and protecting investors. However, it’s important for investors to be aware of both the positive and negative implications of ASM and to conduct thorough due diligence before making any investment decisions.
What Is GSM?
The Graded Surveillance Measure, or GSM, system keeps an eye out for anomalous price swings or unsatisfactory financial results in the securities market. It was introduced by SEBI in 2017 to warn investors to exercise extra caution and due diligence while handling securities of this nature.
The GSM list consists of companies experiencing abnormal price increases that are out of line with their financial health or fundamentals are included on the GSM list. These businesses are prone to financial misbehaviour and are frequently referred to as penny stocks. These securities can be identified by a number of factors, such as net worth, book value, earnings, fixed assets, P/E multiple, and more.
How Are Stocks Selected for the GSM List?
The GSM list stock is selected through two criteria listed below:
Criteria I: For this criteria, the following 3 conditions must be met:
- Net worth less than or equal to ₹10 crore.
- Net Fixed Assets (Tangible Assets + Capital Work in Progress) less than or equal to ₹25 crore.
- PE greater than 2 times the PE of Benchmark Index (Nifty 500) OR a negative PE.
Criteria II: Conditions for securities to be included directly under Stage 1 of GSM:
- Full market capitalisation less than ₹25 crore.
- PE greater than 2 times the PE of the Benchmark Index (Nifty 500) or negative PE.
- P/B (Price to Book) value greater than 2 times the P/B value of Benchmark Index (Nifty 500) OR negative P/B value.
GSM Stages
Under GSM, the securities move through four stages:
| GSM Stage | Action |
| 1 | Applicable margin rate shall be 100%, and the price band of 5% or lower. |
| 2 | Trade for trade with a 5% or lower price band and Additional Surveillance Deposit (ASD) of 50% of trade value by the buyers. |
| 3 | Trade for trade with a 5% or lower price band and Additional Surveillance Deposit (ASD) of 100% of trade value by the buyers. |
| 4 | Trade for Trade with a price band of 5% or lower as applicable and ASD (100% of trade value) to be deposited by the buyers with no upward movement. |
How To Check the List of Stocks Under GSM?
You can easily check the list of GSM stocks on NSE by clicking here: https://www.nseindia.com/reports/gsm.
Impact of GSM
It mainly serves as an advisory mechanism for investors and advisors. The securities under GSM levels indicate potential underperformance or risk. The system helps advisors and investors avoid stocks that might not provide favourable returns.
Conclusion
SEBI introduced various steps to promote stability, fairness, and transparency in the stock market.
Out of those, two are ASM and GSM lists. These lists are created using predetermined standards, such as trading activity, financial stability, and other pertinent variables. The goal of including equities under the ASM and GSM lists is to shield investors from the risks connected to unstable markets or underperforming assets. If the above information interests you, open a demat account with Angel One today online for a hassle-free process.
Disclaimer: This blog is exclusively for educational purposes. The securities quoted are exemplary and are not recommendatory.
