Did you know?
Amongst the companies listed on NSE, 314 scrips are under the radar of SEBI for surveillance under the ASM List & 87 scrips are in GSM list for possible manipulation in share prices as on 7th January 2022?
Securities Exchange Board of India, shortly called as SEBI was formed in 1995 after many scams caught light of the day. SEBI makes it a great deal to maintain a healthy investing environment. It is like the school principal who maintains integrity and propriety in the share market in India. In fact the existence and formation of SEBI is to safeguard interest of investors. SEBI requires its members to adhere to the guidelines of surveillance it has laid down to avoid price manipulation, volatility or concentrated trade that might turn harmful for its retail investors. That’s when Graded Surveillance Measures(GSM) came into picture. An evolved version of it is Additional Surveillance measures(ASM).
GSM List came before ASM. GSM was introduced in 2017.
Now the question is, what is GSM List?
Imagine a company with a weak report card or in financial terms, we call it weak fundamentals. Would it not be a red flag, if such company’s share is trading in the market at a very high price? To detect & curb such abnormality, GSM List was designed.
It is a surveillance framework that identifies companies with weaker fundamentals trading at abnormal prices in the market. Such scrips are added to Graded Surveillance Measure List to alert the investors dealing with such scrips of possible manipulation. Most experts advice investors to pull their investment away from such scrips as the price movements will be extreme and abnormal.
Most companies added to the GSM List would be penny stocks or get quick rich schemes. These will have poor performance in operation but the market price of the share would be other way. Companies with penny stocks that have lucrative profit making opportunities with erratic fluctuations come under radar of compliance/risk officer of SEBI.
GSM reviews are made quarterly. It has zero + four stages of identifying the degree of default.
What is ASM List in stock market?
An evolved and developed version of GSM was required to cover loopholes created overtime. ASM was introduced in March 2018. This mechanism alerts SEBI in case of violation of the guidelines or on happening of possible conditions that indicate excessive price fluctuations.
On occurrence of such an instance, the company automatically gets pushed into a list called the ASM List. Additional Surveillance List(ASM) is then studied and monitored by a compliance/risk officer who classifies these companies in four stages of surveillance.
A scrip that enters ASM stays there for 90 days with weekly review, passing through 4 stages, monitored under 7 criteria. 1st stage being the stage before exit.
Of course there are exceptions that reflect extreme price fluctuation like derivatives etc.
On what criteria does a company gets added to an ASM List ? Or how does the compliance officer get to know about a possible manipulation in a company’s trade?
- A sudden buying or selling by substantial share holders also triggers the suspicion. This is a case of volatility in volumes or concentration of clients.
- Abnormal price hit in closing prices
- High or low abnormal price variation
- Abnormal Price Earning ratio in comparison to the one set by indices.
- Abnormal delivery percentage or volume changes.
To know about the criteria on which SEBI shortlists scrips and adds them to short term or long term ASM, please read the FAQs on ASM answered on NSE website.
What happens when a scrip enters the ASM List?
- The scrip will be mentioned in the dashboard of the exchange along with the criteria and stage.
- A notice will be sent to the exchange and members participating in the scrip.
- Investors holding and the scrip and intending to buy the scrip will be alerted with a notice.
- Company hosting the scrip shall be sent a notice by SEBI to explain the abnormalities.
- Additional restrictions shall be asked to be adhered by the investors of the scrip.
How to know which stock is added to GSM or ASM List?
With the advent of technology, your broker app or your broker would send you an alert message, if any of the scrips you hold sink into surveillance lists.
Investor will be alerted with a message from the securities exchange board before buying or selling of an ASM shortlisted scrip. “Security is under Surveillance Measure, Would you like to continue?”
When a scrip enters the list, the exchange and participants will be alerted about it with a notice before one trading day before the action becomes effective.
But before investing in any stock, you can check the ASM or GSM List published on the NSE website.
What should an investor do if the stock they hold/want to buy ASM scrip?
Is it safe to invest in stocks that are in ASM List?
Mere addition of a scrip into the ASM list does not indicate an adverse opinion it. ASM List is a surveillance measure for prevention and detection of fraudulent actions in the price and volumes of the scrips being traded.
It should also be noted that many fundamentally strong companies with extreme demand also enter the ASM lists just because they either hit the high low price band frequently or are traded in larger volumes which may see abnormal. This might purely be out of the investors favorite choices.
If a stock/scrip has entered the list, but is a strong company without a suspicion of manipulation, investors should hold on to their horses and maintain patience.
In case of extreme abnormality, it would be sane to exit the scrip and safeguard investment.
What constraints are levied on scrips which enter the ASM List?
These constrains shall vary for every stage in the ASM List. Also, such constrains will be evenly applicable to retail and institutional investors.
- Margin Constraints – Stock can be traded with 100% margin only or existing margin, whichever is higher. Which means, stock marketers can only buy the stock by paying 100% of the money. This margin can vary in different stages of the list. Example 50 % or existing margin whichever is higher.
- Trade to trade – If you sell the scrips of such companies, you cannot buy it back on intraday. Scrips of the ASM category bought cannot be sold on the same day.
- Price freeze – Price bands shall be fixed on such scrips. A ceiling price will be fixed on such scrips and on reaching such ceiling, trade of such scrips will be frozen.
- Additional margins/ charging deposits – Additional deposit might be requested from the buyers to apply liquidity constraints on such scrips.
Experts suggest long term investors to hold on to the companies with strong fundamentals. But if they wish to make profits in short term, they should consider the restrictions and also follow the movement of stock from stage four to stage one.
Investors should realize that the ASM List are investor friendly and investor protection measures that are systematically laid by SEBI for safeguarding interests of all participants of the market.
This article is purely for educational purposes. None of the views mentioned are investment advices. Investors should use their discretion before investing in the stock market.
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