BSE, NSE extend additional surveillance measures, trade-for-trade settlement to SME stocks

In a move to curb speculative trading in the small and medium enterprises (SME) segment, stock exchanges BSE and the National Stock Exchange (NSE) on Monday announced that these SME stocks will come under the Additional Surveillance Measures (ASM) framework and trade-to-trade settlement.

In a joint surveillance meeting of exchanges and market regulator Securities and Exchange Board of India (Sebi), it has been decided that the short-term ASM framework and trade-for-trade framework will be extended to SME stocks subject to certain changes, according to circulars issued by BSE and NSE.

A stock can be placed under additional surveillance measures in case it falls under a certain basis including high variation between high and low prices and variation in volumes as compared to the monthly average. Such shares also attract higher margin requirements.

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In the trade-for-trade (TFT) framework, speculative trading is not allowed and delivery of shares and payment of consideration amount is mandatory.

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“TFT framework shall be in conjunction with all other prevailing surveillance measures being imposed by the Exchanges from time to time. Further, It may also be noted that the shortlisting of securities under TFT is purely on account of market surveillance, and it should not be construed as an adverse action against the concerned company / entity,” the circular said.

The new frameworks will be made available by October 3, the circulars noted.

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The Sebi and exchanges, in a bid to enhance market integrity and safeguard the interests of investors, have been introducing various enhanced pre-emptive surveillance measures from time to time.

“Regulator has levied ASM on SME stocks as at times these are susceptible to price rigging due to low volumes / liquidity. The circular from exchanges calls for ASM in any SME scrip if price moves + or - 25% in 5 trading days or few clients are dominating trading in that particular scrip. In such a scenario exchange may levy upto 100% margin in such scrips for trading and will seek clarity from the company w.r.t any corporate announcements which may be behind the price movement,” explained Shrey Jain, founder, SAS online, a deep discount brokerage platform.

“Lot of times the pump and dump strategy is used to manipulate investors in these scrips. Regulatory measures will help bring about stability in price movement of these stocks,” Jain said.

Earlier, the stock exchanges put in place an enhanced surveillance mechanism for companies that have a market cap of less than ₹500 crore.

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