Additional Surveillance Mechanism

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Context:

• The National Stock Exchange (NSE) placed Adani Enterprises, Adani Ports, and Ambuja Cements under the additional surveillance mechanism (ASM).
• The move comes as shares of Adani group companies continue to fall in the wake of accusations of stock manipulation.

Read: https://www.iasgyan.in/daily-current-affairs/short-selling

What is Additional Surveillance Mechanism (ASM)?

• The ASM was introduced in 2018 by SEBI with the intention to protect investors from market volatility and unusual changes in share price.
• The shortlisting of securities for placing in ASM is based on criteria that are jointly decided by the Securities and Exchange Board of India (SEBI) and exchanges, covering the parameters of:
  • High low variation,
  • Client concentration,
  • Close-to-close price variation,
  • Market capitalization [Market Cap = Current Share Price * Total Number of Shares Outstanding. For example, a company with 20 million shares selling at $100 a share would have a market cap of $2 billion]
  • Volume variation,
  • Price-Earnings Ratio, (Read below)
  • Delivery percentage, and
  • Number of unique PANs.
• Put simply, an ASM shortlisting signals to investors that the stocks have seen unusual activity.

Note: The shortlisting of securities under ASM is purely on account of market surveillance and it should not be construed as an adverse action against the concerned company / entity.

Stricter Exchange Rules imposed on ASM stocks:

• If Stock A enters the surveillance list today (say July 31), it will be moved into a percent price band on August 1. That is, its price can move only 5 percent either way from the previous day’s closing level. The stock will be halted from trading for the rest of the day if it breaches the 5 percent limit.
• From the fifth trading day (August 7, in our example), 100 percent margin money will be required to trade Stock A.

MARGIN MONEY IN TRADING Suppose you want to buy 1000 shares of XYZ, the current price of which is INR 100 apiece. So, you need INR 1 lakh. But, your trading account has a clear balance of INR 50,000, meaning you need INR 50,000 more to place the trade. You can get the additional fund in two ways - pour the money from your bank account or request your broker to give you the additional money.   When your stockbroker gives you the additional money, it is known as margin money. You can use the margin money to take long or short intraday positions. You can also use the money to trade futures and options, commodities, currencies, and the like.

• A stock in the surveillance list will be moved to a Trade-To-Trade Settlement if its PE ratio shoots above 100. It will be moved out of the list if its PE falls below 10 or below the ratio of Nifty 500 Index.

TRADE TO TRADE SETTLEMENT Trade to Trade settlement is a segment where shares can be traded only for compulsory delivery basis. It means Trade to Trade shares cannot be traded on intraday. Each share purchased/sold which are parts of this segment need to be taken delivery by paying full amount. For example:- In normal rolling settlement, one can trade stocks intraday (One can buy and sell a security on the same day). Suppose you buy 1,000 shares of SUZLON at Rs.25 per share and sold these 1,000 shares for Rs.30 per on the same day (before the close of trading). You have gained Rs.5 per share (less brokerage/Other Expenses). This is the amount you will receive from your broker in the normal rolling settlement system. But, if the same stock is under trade-for-trade segment, you will have to pay Rs.25,000 to take delivery of the shares you bought. Similarly, the quantity you have sold will have to be presented for delivery in Demat A/C. The Trade-for-Trade segment considers each transaction individually. PRICE-TO-EARNINGS RATIO Price to Earnings Ratio or Price Earnings Multiple is the ratio of share price of a stock to its earnings per share (EPS). PE ratio is one of the most popular valuation metrics of stocks. It provides an indication of whether a stock at its current market price is expensive or cheap.

• Such curbs discourage speculators and intra-day traders from taking heavy positions in stocks.

PRELIMS MODEL QUESTION

Q: Which of the following statements is not correct?

1. Price to Earnings Ratio or Price Earnings Multiple is the ratio of share price of a stock to its earnings per share (EPS).
2. The shortlisting of securities under the Additional Surveillance Mechanism puts an adverse action against the concerned company /entity.
3. Trade-to-Trade settlement is a segment where shares can be traded only for a compulsory delivery basis.
4. Market capitalization is a criterion that is considered by SEBI while shortlisting securities for placing in ASM.

https://indianexpress.com/article/explained/everyday-explainers/nse-adani-firms-additional-surveillance-mechanism-what-is-asm-8420733/