InvestorQ : Can you explain what is meant by graded surveillance measures (GSM) on the National Stock Exchange (NSE)?
Anamika Sodhani made post

Can you explain what is meant by graded surveillance measures (GSM) on the National Stock Exchange (NSE)?

2 years ago

The Securities and Exchange Board of India (SEBI) and the two Exchanges in order to enhance market integrity and safeguard interest of investors, have been introducing various enhanced pre-emptive surveillance measures such as reduction in price band, periodic call auction and transfer of securities to Trade for Trade segment from time to time. A recent measure is the graded surveillance measures on select stocks. The main objective of these measures is as under.

Alert and advice investors to be extra cautious while dealing in these securities

GSM is intended to advice market participants to carry out necessary due diligence while dealing in these securities. In continuation to various surveillance measures already implemented, SEBI and Exchanges, pursuant to discussions in joint surveillance meetings, have decided that along with the aforesaid measures there shall be additional Graded Surveillance Measures on securities with price not commensurate with financial health and fundamentals like Earnings, Book value, Fixed assets, Net-worth, P/E multiple, Market Capitalisation etc.

The list of such securities identified under GSM is informed to the market participants from time to time and is made available on the exchange's website. Here are the highlights.

· All market participants dealing in identified securities have to be extra cautious and diligent as, Exchanges and SEBI may at an appropriate time subject to satisfaction of certain criteria lay additional restrictions.

Placing securities in Trade for Trade category;

Requirement of depositing additional amount as Surveillance Deposit, which shall be retained for an extended period;

Once in a week trading;

Once in a month trading and

Freezing of price on upper side of trading in securities, as may be required.

Any other surveillance measure as deemed fit in the interest of maintaining the market integrity.

· All the aforesaid actions shall be triggered based on certain criteria and shall be made effective with a very short notice.

· The above surveillance actions are without prejudice to the right of Exchanges and SEBI to take any other surveillance measures, in any manner, on a case to case basis or holistically depending upon the situation and circumstances as may be warranted.

· 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.

Graded Surveillance Measures (GSM) - Shortlisting of Securities

The detailed criteria for shortlisting & review of securities under GSM Framework is given below:

Criteria I:

The following criteria shall be made applicable for inclusion of securities under GSM Framework.

· Securities with latest available Net worth (Share Capital + Reserves & Surplus – debit balance in P&L) less than or equal to Rs. 10 crores; AND

· Securities with latest available Net Fixed Assets (Tangible Assets + Capital Work in Progress) less than or equal to Rs. 25 crores; AND

· Securities with PE greater than 2 times PE of Benchmark Index (Nifty 500) OR negative PE.

The following securities shall be excluded from the process of shortlisting of securities under GSM:

· Securities where the price discovery is yet to take place as per the provision of SEBI circulars.

· Securities already under suspension

· Securities on which derivative products are available

· Securities as a part of any index (NSE or BSE)

· Public Sector Enterprises and its subsidiaries, if available

· Securities listed during last 1 year through Initial Public Offering (IPO)

· Securities which have paid dividend for each of last three preceding years

· Securities with Institutional holding greater than 10% only if following conditions are met: If the promoter entity has not offloaded any share in the last 5 years; AND the current trading price of the security is within the range of High & Low price in last 3 years of the respective security.

· Securities listed through Scheme of Arrangement involving Merger / Demerger during last 1 year:

Criteria II:

The following criteria shall be made applicable for inclusion of securities directly under GSM - Stage I.

· Securities with full market capitalization less than Rs. 25 crore; AND

· Securities with PE greater than 2 times PE of Benchmark Index (Nifty 500); OR

· Securities with negative PE, the following should be considered:

P/B (Price to Book) value of scrip greater than 2 times the P/B value of Benchmark Index (Nifty 500) OR

P/B value is negative