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To protect investors from the perils of trading in scrips where the rise in price is not commensurate with their financial performance and business fundamentals, the National Stock Exchange (NSE) will shortly introduce graded surveillance measures.
This means, scrips whose prices rise abnormally despite indicators such as earnings, book value, fixed assets, net worth, and price/earnings multiple not reflecting adequate reasons for that rise, would be subject to a higher degree of surveillance.
Additional restrictions such as placing/continuing such scrips in the trade-to-trade segment, asking for additional money as surveillance deposit, trading once a week/month, besides freezing the price on the upper side would be implemented, according to a decision taken at a joint surveillance meeting of exchanges with SEBI.
The NSE said it would separately inform market participants by publishing a list of such shares and the graded surveillance measures would commence a week after the list is out. The process of identifying and reviewing of these scrips/securities would be done twice a year.
Modus operandiA six-stage surveillance action has been envisaged for these shares. In the first stage, the scrip would be transferred to the trade-to-trade segment with a price band of 5 per cent or lower.
Once moved into this segment, intra-day trading in the scrip cannot happen; it has to be delivered for T+2 settlement compulsorily.
In the second stage, an additional surveillance deposit (ASD) of 100 per cent of the scrip value would be levied on the buyer of the scrip over and above the existing collateral margins. The scrip would remain in the trade-to-trade segment with a price band of 5 per cent or lower.
The next stage would permit trading once a week (every Monday) in addition to the 100 per cent ASD. And, in the next stage, while trading will be permitted weekly, the ASD would be doubled to 200 per cent.
The fifth stage would allow trading in the scrip only once a month (first Monday of every month) along with 200 per cent ASD to be deposited by the buyer. The last stage would freeze the scrip price on the upper side while asking for 200 per cent ASD.
Relaxation of surveillance action will also be done in the reverse order of the stages outlined, based on a quarterly review.
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