As an investor our aim to earn the profit but at the same time, we also want to protect our capital. Many times we are thinking that how to find the stocks which are operator driven or are being manipulated? To check this we may check the stock movement, a sudden spike in the price and volume of the script. This you have to find on your own. There is a technique which is called additional surveillance measure implemented by both the major exchanges BSE and NSE.
The Exchanges have put specific stocks under this surveillance system and hence the price of these stocks are moving down rapidly. Investors are wondering what to do about the stocks in ASM if they have any in their portfolio. Let’s understand the term ASM and further, I will also help you to take a decision about what you should do if your portfolio has any of the ASM stocks.
What is Additional Surveillance Measure?
It is a newly introduced technique by SEBI to keep a tab on market speculation and manipulation. High volatile and risky stocks are placed under this list. You will be surprised to know that many multi-bagger stocks which have given very good returns in the last year are also placed under this watch list. To name a few, Graphite India, HEG, Dilip Builicon etc. are under this list. This technique was introduced by NSE on 21st March 2018. There are 4 stocks from group A as well into this list.
There will be some restriction on such scripts like
stock filter circuit will be revised to 5%
100% margin required to trade in such stock
Further, if the above mentioned measured don’t achieve the desired objective then the stock is a move to T2T segment i.e. Trade to Trade segment. In Trade to trade segment, Intraday trading is not allowed and the buyer has to compulsory take delivery of the stocks.
As per the NSE, this measure is taken on securities is purely on the account of market surveillance which should not be considerd as any adversed action against the company.
An investor or trader can keep a watch on stocks in Additional Surveillance Measure (ASM) as it is a good indicator to identify stocks with speculative activity, manipulation or stocks under the operator’s influence. Following 5 parameters are used for shortlisting securities under Additional Surveillance Measure (ASM)
a. High Low Variation
b. Client Concentration
c. No. of Price Band Hits
d.Close to Close Price Variation
e. PE Ratio
The exchanges will review the list every 2 months and make the changes as per the ASM framework.
There is another surveillance system also which is called GSM ( Graded Surveillance System)
What is the Graded Surveillance Measure?
There is an another more stringent measure introduced by SEBI to counter abnormal price and volume rise which are not in line with the financials of the companies.
Why are such stringent measures required?
The main reason behind such measures is to alert and protect investors from the market manipulation. SEBI may put companies under surveillance based on the abnormal price hike without any strong backing of financials of the company.Such measure will send a strong alert message to all investors to be an extra cautious while purchasing the security.
How the Graded Surveillance Measure works?
There are six stages of the graded surveillance system. Each stage has its own restrictions and it will become more and more stringent as you move up the stage.
In the first stage, the security is put into T2T (trade to trade) segment. In which no speculation is allowed. There will be a ban on intraday trade. You have to give 100% margin to purchase the security.
The second measure is it allows a maximum of 5% movement in share price. Meaning circuit filter is revised to 5% only.In the second stage, a buyer has to put 100% of trade value as for additional surveillance deposit. The deposit will be retained by the exchange and will be refunded after 5 months in a phased manner.
In the third stage, trading of such security is allowed only once a week I.e. every Monday.
In the fourth stage, trading would be allowed once a week and additional security deposit increases to 200% of the trade value.
In the fifth stage, trading would be allowed only once a month I.e. First Monday of the month with the additional security of 200%.
In the sixth stage, trading is permitted once a month with zero upward movements allowed in the price. The additional security deposit of 200% is required at this stage as well.
Will securities remain permanently in the Graded Surveillance list?
The SEBI would review a security every quarter. Based on the criteria the would move from higher to lower stage as mentioned above.
What does this mean for an investor?
- Under this surveillance the trader will have to deposit 100% of the margin, this means there will be no margin available.
- The stock circuit will be filtered @ 5%
- Intraday trading for such script will not be possible.
- If you are an investor, it will affect you adversely as due to this surveillance the panic situation will be there and people will start selling the stocks which will bring the price down.
- If you are a long-term investor, you need not worry as this is a short-term effect.
- This system will help the investor to have one more criterion while choosing stocks for investment.
List of the securities under ASM
I have compiled the list of the securities under this surveillance from both BSE and NSE exchange. There are two different sheets one each for BSE and NSE. Please download the excel file which contains the list of the securities.