A step to strengthen market integrity
City: 

Bringing select stocks under additional surveillance measures (ASM) by market regulator Securities and Exchange Board of India (SEBI) and stock exchanges adding more stocks under ASM category to further strengthen market integrity amidst price bubbles in an over heated market condition is seen as a good measure by analysts and market participants.

ASM follows Graded Surveillance Measures (GSM) introduced last year by the stock exchanges on Sebi’s directive which had a list of 910 stocks with defined surveillance grade from I to VI.

The purpose behind introduction of GSM framework was similar to ASM but for monitoring mostly small cap stocks and verifying shell companies. GSM was introduced by SEBI and exchanges in continuation of various enhanced surveillance measures such as reduction in price band, periodic call auction and transfer of securities to Trade-to-Trade category from time to time.

BSE action

Additionally BSE, in order to protect the interests of investors, took several other measures like categorisation of companies under X/XT sub-segment, periodic price bands, surveillance action like suspension of trading of

companies due to surveillance concerns and steps towards enhanced corporate governance like the facility for companies for online filing of listing disclosures.

In the case of BSE, out of 4,856 companies with listed equity capital, 796 have been suspended from trading. There are 4,105 companies which are available for trade as per BSE’s listing statistics. Even prior to ASM and GSM introduction, BSE had equity segment classified as A Group, B Group, T Group and Z Group of stocks based on qualitative and quantitative parameters.

Top BSE 500 companies formed A group. The T group represents securities which are settled on a trade-to-trade basis as a surveillance measure.

The Z group was introduced by BSE in July 1999, and includes companies which have failed to comply with its listing requirements or have failed to resolve investor complaints or have not made the required arrangements with both the depositories Central Depository Services (CDSL) and National Securities Depository (NSDL) for dematerialisation of their securities.

Objective

The main objective of these measures is to alert and advise investors to be extra cautious while dealing in these securities and advise market participants to carry out necessary due diligence while dealing in these securities.

According to market experts, ASM is a good measure and BSE should now abolish A, B, T and Z Groups. BSE recently abolished S Group as classification category. “Market participants may note that ASM framework shall be in conjunction with all other prevailing surveillance measures being imposed by the exchanges from time to time,” BSE said.

At the same time experts feel before putting a stock in ASM category company should be given a show cause notice as to why the stock shouldn’t be put under ASM so that the company also has a legal recourse. Exchanges have said that shortlisting of securities under ASM framework is purely on account of market surveillance and it should not be construed as an adverse action against a company/entity.

On exchanges putting stocks under ASM category, some market participants felt that exchanges were going too far and trying to become regulators while their job is to monitor.

Columnist: 
Ravi Ranjan Prasad