Leading stock exchanges BSE and NSE will put in place graded surveillance measures to check any abnormal rise in stock price not commensurate with the company’s financial health. The proposed measures, which include restricting trades of the companies’ concerned, will be in addition to the existing surveillance steps. Market participants will have to be “extra cautious and diligent” with respect to securities identified under the Graded Surveillance Mechanism (GSM), the exchanges said in similarly-worded circulars.
The additional measures will be in place for “securities which witness an abnormal price rise not commensurate with financial health and fundamentals like earnings, book value, fixed assets, net worth, P/E multiple…”. Among the steps being proposed under GSM are placing such securities in trade to trade category, requiring the entities to deposit an additional amount as surveillance deposit which can be retained for an extended period and freezing of price on the upper side of trading in shares. Making such securities available for trading just once in a week or month will also be looked at.
According to the exchanges, these actions will be triggered on the basis of certain criteria and “made effective with a very short notice”.
In recent times, there have been instances where shares of certain companies have seen a steep surge in prices despite no major trigger.
“The members trading in the identified securities either on their own account or on behalf of clients shall be kept under close scrutiny by the exchange, and any misconduct shall be viewed seriously,” the bourses said.
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These surveillance actions are without prejudice to the right of exchanges and Sebi to take any other surveillance measures on a case to case basis or holistically, depending on the situation and circumstances, they added. The list of securities put under GSM will be periodically reviewed and published by the exchanges in a coordinated manner. Additional Surveillance Deposit (ASD) should be paid only in the form of cash and retained till review of the graded surveillance stages.
“This ASD shall not be refunded or adjusted even if securities purchased are sold off at the later stage within a quarter and also shall not be considered for giving further exposure,” the bourses said.
The amount will be over and above the existing margins or deposits levied by the exchanges on transactions in such companies and interest free. In case of default in payment of ASD, penal actions will be initiated.