16 May 2023 • 4 min read
The stock market operates under a lot of surveillance, and the companies must follow the regulations the regulatory offices lay. ASM is a list of collections of securities that are under supervision or closely watched at that given moment.
Additional Surveillance Measures, commonly known as ASM, is an initiative the Securities Exchange Board of India (SEBI) and exchanges take to safeguard the investor’s interest and enhance market integrity. SEBI has been introducing numerous pre-emptive surveillance measures since its establishment in 2018, like price band reduction, periodic call auctions, and transfer of securities to trade for trade segments regularly.
Below are the parameters evaluated during the shortlisting of the securities that will be placed in the ASM list by the SEBI and exchanges:
GSM, or graded surveillance measure, is an initiative by SEBI, a.k.a. the Securities and Exchange Boards of India and upholding the responsibility of safe-keeping of the investors along with enhancement of market integrity. In GSM, specifically identified securities are subjected to enhanced monitoring and surveillance.
The securities come in the GSM list mainly to alert and advise the investors to be extra cautious in case they plan to deal with these securities. It also alerts the market participants to conduct their due diligence while working alongside these securities.
Both ASM and GSM are the preventive measures taken to safeguard and protect the interest of the investors. Therefore, any stock that falls outside the regulations set by the SEBI and exchanges comes under the ASM and GSM list by meeting specific criteria.
ASM is an excellent method for investors since SEBI will crosscheck the unexpected price movements in stock and can control any malpractices and speculative actions. On the other hand, with the support of GSM, SEBI plans to identify the underperforming securities at an initial phase and alert the advisors not to invest in those. Monitor such protection for sudden earnings, book value, and net worth changes.
Once the stock is on the ASM or GSM list, they are subjected to more stringent rules. For example, these stocks cannot operate intraday leverages such as cover and bracket orders. In addition, after five days of the stock publishing to the list, it is subject to a 100% margin, making margin trading impossible. It happens because margin trading allows traders to sell or purchase the stocks at a discount between 35 and 40 percent below the stock’s market price.
Furthermore, these stocks are susceptible to a 5% circuit filter, meaning the stock will not have a share price fluctuation of more than 5%. It constrains the trader’s profit or loss and ensures the stock price remains stable.
SEBI introduced these surveillance measures to prevent investors from investing in stocks with deceitful pricing or excess volatility. Therefore, the stocks falling in this list are a red flag for investors, and as a general practice, people should refrain from investing in stocks under ASM and GSM lists in the stock market.
If someone has a stock or security in the ASM/GSM list, not much will change for that individual regarding trading. However, low leverages may cause a drop in the volume, and the shares are not seen as collateral. In addition, since the SEBI allows only a 5 percent price range, these stocks can only have a maximum variance of 5 percent up or down, making them result in lower volatility.
Adding a stock to the ASM or GSM list is not a punishment for the stocks or the companies. It is just an advisory method to regulate price movements and safeguard investors.
It is a good practice that people should take time to learn the advantages and disadvantages of investing in a particular stock. Also, investors must know what is asm and gsm in stock markets and closely monitor stocks listed on ASM and GSM lists.
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