BackDe-jargoned | Trade-to-trade stocks
De-jargoned | Trade-to-trade stocks
Premium
What is it?
So far this fiscal, the stock markets have relegated at least 50 companies to the “trade-to-trade" segment. Here, investors can’t undertake speculative trading and delivery and payment of shares is mandatory. This essentially means that if a share is transferred to this category, investors are not allowed to square off intra-day positions.
Why is it done?
Stocks are also transferred to this category if, say, the markets are doing well but a stock falls significantly. This may mean that participants are offloading their position either to pick the stocks at lower valuation or just booking profits from the artificial price created earlier.
Whenever such suspicious movement is seen in any scrip, the bourses take such action, which is then reviewed at periodic intervals. There are various criteria (price-earnings, market capitalization and price variation) to scrutinize these scrips. The decision to move a stock to or from this category is taken jointly by the bourses. The capital markets regulator, the Securities and Exchange Board of India, is also consulted for such a decision.
What it means for you
Usually, when such decisions are taken for any scrip, investors should be vigilant and should refrain from investing in them. Since such a decision is taken after much deliberation by bourses, it indicates that the performance of the company in the past, the fundamentals of the business and other key parameters are not supporting the stock valuation.
If you are already invested in such scrips, then it is advisable that you exit your positions. The reason: if the prices have been artificially pushed up and the bourses or the regulator finds any wrongdoing during the review process, the prices will eventually fall. Alternatively, if you hold stocks that have depreciated abysmally and have been transferred to this category, you have few options other than exiting as the bottom may be too low.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
