BSE clarifies on Add-on Price Band Framework; check new rules here

The new rules for mid-, small-cap stocks shall be applicable from August 23, 2021

In a bid to assuage investor concerns that triggered a sharp selloff in the mid-, and small-cap stocks, the BSE on Wednesday clarified on its new 'Add-on Price Band Framework' and said the new framework shall be applicable to companies with a market-capitalisation of less than Rs 1,000 crore and on securities in groups -- X, XT, Z, ZP, ZY, and Y. The move, analysts say, may stop the bloodbath in the broader markets.

"In partial modification and supersession of the Exchange circular dated August 09, 2021, the new clarifications may stop the bloodbath on Street," said an analyst with a domestic brokerage.

Yash Gupta, Equity Research Associate at Angel Broking, meanwhile, suggests retail investors should not average their buy position at this point in time as markets may remain volatile.
 

On August 9, BSE had issued a circular introducing “a new surveillance framework viz. Add-on Price Band Framework” for securities listed exclusively on BSE Trading Platform. According to it, such stocks will be subjected to additional periodic price limits viz. weekly, monthly and quarterly price limits. CHECK DETAILS HERE

Source: BSE circular

These add-on price bands shall be in addition to the applicable daily price bands of such securities, BSE said.
 

Further, the Add-on price band shall be expressed in terms of a ratio of close price of the security and depending upon the daily price band slab applicable for the security, there will be different ratios of add-on price bands.
 

Source: BSE circular (Note: X is the price of the security)

Once the security reaches the respective price limit of a period, trading shall be allowed only within the respective prescribed price range and the same shall not be revised till the beginning of next cycle i.e. next Week/Month/Quarter wherein new price limits shall be computed for the respective periods, the BSE circular said. 
 

Final upper daily price band shall be minimum of all individual upper price band limits and final lower daily price band shall be maximum of all individual lower price band limits, it added. 

"The measures, I believe, will not have material impact. That said, in the current situation, the fall is happening more so because most players were overbought into these counters. Hence, they offloaded in the backdrop of the new regulation by the BSE. Mid-and small-caps always carry such risks as a number of these counters may/not be liquid enough to give investors an exit opportunity," said Deven Choksey, managing director at KR Choksey Investment Managers. READ THE FULL INTERVIEW HERE

Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services agrees and says there is froth in the mid and small-cap space. "Many stocks in this segment have low liquidity and, therefore, are capable of being manipulated by a group of traders. In the present exuberant state of the market, manipulation is easy and appears to be happening. Therefore, this initiative from the BSE is appropriate from the perspective of market integrity," he adds. 

Given the panic selling, BSE has now reduced the minimum period for which a security could be placed in the framework from 90 days to 30 calendar days. 

"A security placed in Add-on Price Band Framework shall remain in the framework for a minimum period of 30 calendar days and shall be eligible to move out if it does not qualify the provisions of the above framework thereafter. Review of the shortlisted securities under the framework i.e. inclusion/exclusion shall be carried out on monthly basis," BSE said in a new circular dated August 11. READ HERE

The new rules shall be applicable from August 23, 2021 and are in addition to all other prevailing surveillance measures being imposed by the Exchanges from time to time.

On Wednesday, the BSE SmallCap index tumbled 3.3 per cent while the BSE MidCap index dropped 2 per cent on the BSE in the intra-day trade as against a 0.4 per cent decline in the BSE Sensex index.

In the last six trading days, the Nifty MidCap index has corrected by 5.4 per cent from a high of 28,403 to 26,868 while the Nifty SmallCap index has corrected by 9 per cent from the highs of 10,670 to 9,794. Individually, some of the mid-caps and small-caps stocks are down by more than 15-20 per cent in the last 3-4 days.

This comes after a sharp outperformance so far in CY21. The Sensex, for instance, was up 10 per cent in January-July 2021, against a 29 per cent rally in the BSE Midcap and a 48 per cent jump in the BSE Smallcap.