Graded surveillance to check abnormal rise in share prices

Leading exchanges BSE and NSE will put in place graded surveillance measures to check abnormal rise in price of shares that is not commensurate with the company's financial health.
The proposed measures, which includes restricting trades of the companies' concerned, would be in addition to existing surveillance steps.
Market participants would have to be "extra cautious and diligent" with respect to securities identified under the Graded Surveillance Mechanism (GSM), the exchanges said in similarly worded circulars issued today.
The additional measures would be in place for "securities which witness an abnormal price rise not commensurate with financial health and fundamentals like earnings, book value, fixed assets, net-worth, P/E multiple...," they said.

Among the steps, being proposed under GSM, are placing such securities in trade to trade category, requiring the entities to deposit additional amount as surveillance deposit which can retained for an extended period, and freezing of price on upper side of trading in the shares.
Making such securities available for trading just once in a week or month would also be looked at.

According to the exchanges, these actions would be triggered on the basis of certain criteria and would be "made effective with a very short notice".
In recent times, there have been instances where shares of certain companies have seen steep surge in prices despite not having any major trigger.

"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," the bourses said.
The list of securities put under GSM would be periodically reviewed and published by the exchanges in a coordinated manner.
Additional Surveillance Deposit (ASD) should be paid only in form of cash and retained till review of the graded surveillance stages.
"This ASD shall not be refunded or adjusted even if securities purchased is sold off at the later stage within a quarter and also shall not be considered for giving further exposure," the bourses said.

The amount would be over and above existing margins or deposits levied by the exchanges on transactions in such companies and would be interest free. In case of default in payment of ASD, penal actions would be initiated.