Against the backdrop of the Hindenburg allegations and the withdrawal of the Adani Enterprises FPO despite it being fully subscribed, the stock exchanges have put three Adani Group companies under the short-term additional surveillance measure (ASM) framework. Ashley Coutinho takes a look at what the measure means
What is the purpose of the ASM framework?
The markets regulator, the Securities and Exchanges Board of India (Sebi), and the exchanges have been introducing several surveillance measures to enhance market integrity and safeguard the interest of investors. The objective of the additional surveillance mechanism is to alert and advise investors to be cautious while dealing in select securities and advise market participants to carry out necessary due diligence while dealing in these securities.
How are stocks identified for the ASM framework?
ASM is implemented based on several criteria such as high-low price variation, client concentration, price variation, PE ratio and market capitalisation. Shortlisting of securities under ASM is on account of market surveillance and does not imply an adverse action against the concerned companies.
Different from GSM
Unlike the graded surveillance mechanism (GSM), with Stages 0 to 6, ASM has two stages. Initially, securities are placed under the price band of 5% or lower as applicable and VAR margins levied at the rate of 100%. Subsequently, the shortlisted securities are monitored on a pre-determined objective criterion and moved into trade-to-trade settlement once the criterion gets satisfied.
Is intra-day trading allowed in ASM?
During Stage I of ASM, a 100% margin is imposed for intra-day trading, and a daily price band of 5% or lower is made applicable. During Stage II, when the security is shifted to trade-to-trade settlement, the settlement is delivery based and intra-day trading is not allowed.
What about corporate actions for stocks under ASM? And when can the stock exit ASM?
Corporate actions aren’t impacted by a stock being under ASM. The benefits of all corporate actions like bonus, dividend and stock split are passed on to the shareholder even though the scrip is under ASM. However, pledging is not allowed for stocks under ASM. In such cases where a stock you have pledged is moved under ASM, you will no longer be provided collateral margins for that stock, because, as per ASM, 100% margin should be levied.
The collateral value will reduce by the value of collateral received against that stock. You can either un-pledge the stock or keep the stock pledged without collateral until the stock is moved out of ASM.
The securities shall be placed under ASM till the time they continue to meet predefined objective criteria. Such securities under ASM shall be reviewed on a bi-monthly basis for the applicability of ASM. If the predefined objective criterion is not satisfied, then they would be eligible for moving out from the framework. As long as the stock continues to meet the criteria for short-term ASM without attracting the criteria for long-term ASM, the stock will continue to be subject to the Stage II framework till it doesn’t meet the short-term ASM criteria any more.