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The National Stock Exchange on Thursday placed as many as three Adani group companies, including Adani Enterprises, Adani Ports and Special Economic Zone and Ambuja Cements, under short-term additional surveillance measure (ASM) framework, effective Friday (3 February, 2023). 

This means that these stocks will be subjected to more stringent rules. Also, intraday trading will require 100% upfront margin and is expected to curb a lot of speculation and short selling.

The move by the stock exchange comes after a rout in the shares of the billionaire Gautam Adani's group companies in the aftermath of a scathing report by a US-based short-seller Hindenburg Research.

Adani Group's market losses swelled to more than $100 billion today, a day after its flagship company abandoned a 20,000-crore share sale.

Adani Enterprises Ltd (AEL) closed at 1,564.70 on the BSE today, less than half the price at which shares were offered to investors in the FPO that closed on 31 January.

Explaining the measure, NSE said, "There shall be Additional Surveillance Measures (ASM) on securities with surveillance concerns based on objective parameters viz. Price / Volume variation, Volatility etc."

The applicable rate of margin shall be 50 per cent or existing margin, whichever is higher, subject to maximum rate of margin capped at 100 per cent w.e.f. 6 February, 2023 on all open positions as on 3 February and new positions created from 6 February, NSE said in a statement.

Stocks in the ASM list: What does it mean for investors?

Any stock that is included on the ASM list will be subjected to more stringent rules. The stock can't be pledged and are also forbidden from intraday leverages like cover orders and bracket orders, among others.

"The measure has been taken to reduce extreme volatility of stock prices. If the stocks are further volatile, they can also be moved under ASM stage 2," said Kranthi Bathini of WealthMills Securities.

The stock is subject to a 100% margin after five days it is added to the ASM list.

With this restriction, margin trading becomes impossible. This happens as margin trading often enables traders to purchase or sell stocks at a discount of between 35 per cent and 40 per cent below the stock's actual price.

Moreover, the stocks are susceptible to a 5% circuit filter. This means that a stock that is listed on the ASM market may not have share price fluctuations of over 5%. 

As a result, traders' profit or loss is constrained. The stock price remains stable as a result of this. working best for long-term retail investors as a result.

The company's actions that benefit the investors are unaffected despite being included to the ASM list. The standard procedures are followed for benefits such dividends, bonuses, and stock splits.

If one owns a stock that is now subject to the ASM framework, little will change in terms of trading, but low leverage may cause a drop in volume. 

Experts say those shares cannot be used as collateral. Given the 5 per cent price range, these scrips can only have a maximum uptick or downtick of 5 per cent, which will result in lower volatility.

“Trade will pretty much remain the same, but lower leverage could reduce volumes. Collateral may not be provided for stocks under this category, so liquidity will reduce," Zerodha's Nikhil Kamath told Mint earlier.

In order to regulate the extremely volatile equities on the stock market, capital markets regulator SEBI and recognised stock exchanges established ASM back in 2018. It works as a speculative trading control measure to protect retail investors' interests and shield them from risky trading circumstances.

The ASM list is a list of securities that are currently getting monitored due to factors such as price fluctuation, volatility, volume variance, among others. 

Stocks that are shortlisted for inclusion on the list serve as a warning to investors about unusual price movement. There are certain trading restrictions on these stocks to put an end to any potential conjecture.

With inputs from mintgenie

ABOUT THE AUTHOR
Meghna Sen
Business journalist tracking markets, companies, economy and crypto for Livemint. She has 6 years of experience with online and print publications. Email: meghnasen08@gmail.com
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