Understanding the Additional Surveillance Measure (ASM) Framework in the Stock Market

Key Highlights

The Additional Surveillance Measure (ASM) framework is an initiative by the SEBI and stock exchanges to maintain market integrity and protect investor interests.
The ASM framework identifies securities based on specific objective criteria including High-Low Price Variation, Client Concentration, Close-to-Close Price Variation, Market Capitalization, Volume Variation, Delivery Percentage, Number of Unique PANs and PE Ratio.

ASM Framework

The Additional Surveillance Measure (ASM) framework is an initiative by the Securities and Exchange Board of India (SEBI) and stock exchanges to maintain market integrity and protect investor interests. The framework includes various surveillance measures, such as the Graded Surveillance Measure (GSM), reduction in price bands, periodic call auctions, and transferring securities to the Trade for Trade segment. The main goals are to alert investors about potential risks and ensure due diligence by market participants.

Criteria for Shortlisting Securities Under ASM

The ASM framework identifies securities based on specific, objective criteria, including:

High-Low Price Variation: Significant price fluctuations within a short period.
Client Concentration: High concentration of trading volume among a few clients.
Close-to-Close Price Variation: Large changes in closing prices over a defined period.
Market Capitalization: The total market value of a company’s outstanding shares.
Volume Variation: Changes in the trading volume of securities.
Delivery Percentage: The ratio of shares delivered to the total number of shares traded.
Number of Unique PANs: The number of unique Permanent Account Numbers trading in the stock.
Price-to-Earnings (PE) Ratio: A measure of the current share price relative to its per-share earnings.

Long-Term ASM Framework

Criteria for Inclusion:

1. High-Low Price Variation in 3 months exceeding a threshold plus beta-adjusted Nifty 50 variation.

2. Close-to-Close Price Variation in 60 trading days exceeding a threshold plus beta-adjusted Nifty 50 variation.

3. Combined High-Low and Close-to-Close Price Variation over 365 days.

4. Volume and Delivery Metrics: Average daily volume, volume variation, and average delivery percentage.

5. PE Ratio: Stocks with negative PE or PE significantly higher than the market average.

Surveillance Actions:

Stage I: Imposition of 100% margin from T+3 days.
Stage II: Reduction in price band and maintaining 100% margin.
Stage III: Further reduction in price band and maintaining 100% margin.
Stage IV: Gross settlement with 100% margin and a 5% price band.

Short-Term ASM Framework

Criteria for Inclusion:

Close-to-Close Price Variation over short periods (5 to 15 trading days).
Concentration of Top Clients: High trading volume concentration among a few clients.
Market Capitalization: Differentiated criteria for stocks with varying market capitalizations.

Surveillance Actions:

Stage I: 50% or existing margin, capped at 100%.
Stage II: 100% margin.

Implementation and Monitoring of ASM

The ASM framework has been in effect since March 26, 2018. The stock exchanges, in coordination with SEBI, issue regular circulars informing market participants about the framework and listing securities under surveillance. The measures are applied based on dynamic criteria and are reviewed regularly to ensure effectiveness.

ASM Exit Criteria

Securities can exit the ASM framework based on a stage-wise review:

Long-Term ASM: Stocks move through various stages before exiting the framework if they no longer meet the inclusion criteria.
Short-Term ASM: Stocks are reviewed after 5 to 15 trading days and can exit the framework if they no longer meet the criteria.

Impact of ASM on Companies

Being listed under ASM should not be seen as an adverse action against a company. It is a measure to enhance market transparency and protect investors. The framework operates in addition to other regulatory actions and can be complemented by specific measures depending on market conditions.

The ASM framework is a crucial tool for maintaining market discipline and protecting investor interests. By applying objective criteria and dynamic surveillance measures, SEBI and stock exchanges aim to ensure a fair and transparent market environment.

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