What are Additional Surveillance Measures and Graded Surveillance Measures in Stock Trading?
Millions of Indian investors trade in the stock markets, and many of them fall prey to various stock trading scams or end up buying speculative stocks. We’ve all heard stories of at least one person who lost all their hard-earned money in the stock markets. It’s ironic because, while stock markets are risky, they are also one of the best investment avenues to create long-term wealth for investors.
To protect the interests of investors, the Securities Exchange Board of India (SEBI), the Indian securities market regulator, actively takes steps and implements regulations. Additional Surveillance Measures (ASM) and Graded Surveillance Measures (GSM) are two such initiatives taken by the SEBI and recognized by the stock exchanges to safeguard the interests of investors and enhance market integrity. These measures are implemented along with other surveillance tools like the Trade-to-Trade segment, price bands, and periodic call auctions. When a company share is put on the surveillance list, it gives an investor a heads-up to be extra cautious while dealing with these stocks.
Investors need to be aware of these measures and their implications to make informed trading decisions. Let us see what the ASM and GSM measures are.
What are ASM and GSM?
Additional Surveillance Measures (ASM) and Graded Surveillance Measures (GSM) are surveillance measures imposed by SEBI to identify stocks that require additional caution due to certain criteria.
When a stock is placed under ASM, it alerts and advises investors to exercise extra caution while trading in those securities. Learn more about the criteria for the inclusion and exclusion of securities under the ASM framework on the NSE FAQs.
GSM is a method to keep a check on unrealistic price and volume spikes in stocks that don’t commensurate with the financial health and fundamentals of the company. When there is a significant rise in stock price, not supported by the financial health or fundamentals of the company, it could be a case of price rigging. If SEBI spots such cases, it warns the stock exchanges to monitor price action or even order a suspension of trading of such company shares.
Criteria for Adding a Stock Under ASM and GSM
The criteria for placing stocks under ASM and GSM are determined by SEBI in consultation with stock exchanges. The selection process considers factors such as volatility, price variation, financial health, earnings, book value, fixed assets, net worth, P/E multiple, and market capitalization. These criteria are periodically reviewed, and stocks may be moved up or down in the surveillance hierarchy or removed from the lists based on their performance and compliance.
How are the Stocks Affected after being Added to the ASM list?
A stock that is added to the ASM list is subject to high surveillance and stringent rules, listed below:
- Intraday trading is not allowed for stocks placed under ASM; however, an investor can buy such stocks on delivery. This restriction is imposed to curb speculative trading on such stocks.
- These stocks are also forbidden from intraday leverages like cover orders and bracket orders, among others.
- Margin trading is also not permitted on ASM stocks. 100% of the traded value will get blocked as margins for stocks under ASM.
- These stocks are further susceptible to a 5% circuit filter, which means they cannot have share price fluctuations of more than 5%.
- The pledging of stocks under the ASM category is also prohibited. If a stock that is pledged is moved under ASM, you will not receive any collateral margins against it, and the collateral value will be reduced by the value of collateral received against the stock. You can either unpledged the stock or keep it pledged, but you will not get any collateral margins until it is moved out of ASM.
How are the Stocks Affected after being Added to the GSM list?
GSM stocks face even stricter restrictions than ASM. All the restrictions applied to ASM are also applicable to GSM stocks, and in addition, fresh delivery buying is blocked in GSM stocks due to additional margins, which may go up to 200% at times. For example, if you’re buying GSM stock worth ₹10,000, you may end up blocking up to ₹20,000 in the margin to make this purchase.
Do I receive Dividends on the Stocks Listed in the ASM list?
The good thing is that there is no impact of ASM or GSM on corporate action benefits. Even if the stock that you are holding moves into the AGM or GSM list, you will continue to get the benefits of corporate actions like dividends, bonuses, splits, etc.
How do I identify ASM and GSM stocks?
Investors can stay informed about the status of stocks under Additional Surveillance Measures (ASM) and Graded Surveillance Measures (GSM) by referring to the comprehensive lists provided on the websites of the National Stock Exchange (NSE) – ASM list and the GSM list.
Understanding ASM and GSM is crucial for investors in the stock market. By being aware of stocks under ASM or GSM, investors can exercise caution and make informed decisions. It is important to regularly track updates and changes to the ASM and GSM lists to stay updated on trading restrictions and potential opportunities.
