What is ASM or Additional Surveillance Measures in Stock Market?
ASM, which stands for Additional Surveillance Measures, is a regulatory framework implemented by stock exchanges in India to monitor and manage securities with increased price volatility or unusual trading activity. The Securities and Exchange Board of India (SEBI) introduced ASM to enhance market integrity, protect investor interests, and ensure a fair and transparent trading environment.
ASM Framework in Indian Stock Market
When certain stocks exhibit abnormally high price movements or unusual trading volumes, it may raise concerns about market manipulation, insider trading, or other irregular activities. In such cases, stock exchanges, under the guidance of SEBI, impose ASM on those specific securities.
The ASM framework categorizes stocks into different surveillance stages based on their price movements and trading volumes. Stocks that meet specific criteria trigger the ASM mechanism and are placed in different stages, leading to increased monitoring and stringent regulatory actions.
Stages of ASM:
Stage 1: Stocks in Stage 1 of ASM undergo a 10% price band, meaning their price movement is restricted to a maximum of 10% (up or down) from the previous day's closing price.
Stage 2: Stocks in Stage 2 face a 5% price band, resulting in tighter restrictions on price movements to curb excessive volatility.
Stage 3: Stocks in Stage 3 encounter an additional 5% price band, making the total price movement limit 2.5% (up or down).
Significance of ASM in Indian Stock Market
ASM is a proactive measure taken by the regulatory authorities to safeguard the interests of investors and maintain market stability. It helps identify and control stocks that may be vulnerable to price manipulation or speculative activities. By imposing price bands on these securities, market authorities can limit extreme price fluctuations, reduce speculative trading, and ensure a more orderly market environment.
Impact on Traders and Investors
Traders and investors must be aware of the ASM framework as it directly affects trading strategies and price movements of stocks placed under surveillance. ASM may lead to reduced liquidity and increased trading costs for these securities, impacting short-term trading approaches.
For long-term investors, ASM serves as a cautionary signal, highlighting the need for thorough research and due diligence before investing in stocks that are subjected to additional surveillance measures.