The banning of trading in 331 companies by the exchanges will bring home a simple but vital lesson to all market participants — whether investor or trader, you should constantly monitor the group in which the stock(s) you are invested in is categorised by the exchanges.

Segment & surveillance

The securities traded on the BSE have been classified into ‘A’, ‘B’, ‘T’ and ‘Z’ groups on certain qualitative and quantitative parameters, such as their size, liquidity, exchange compliance and even speculative interest in the scrip.

Similarly, the NSE has ‘EQ’, ‘BE’, ‘BL’, ‘BT’ and ‘IL’.

Recently, the Securities and Exchange Board of India and stock exchanges, in order to enhance market integrity and safeguard the interest of investors, introduced the Graded Surveillance Measures (GSM) wherein certain identified securities will be subjected to enhanced monitoring and surveillance actions.

Currently, the bourses have six stages — I to VI under the GSM framework. Once a security slips into a particular stage, it will attract the corresponding surveillance action.

For instance, a security under GSM Stage-I will attract trade-for-trade (TFT) with price band (movement) of 5 per cent or lower; for Stage-II, additional surveillance deposit (ASD) of 100 per cent of trade value would be collected from the buyer of the stock; under Stage-III, trading is permitted only once a week (every Monday) along with Stage-II criteria; if the stock is downgraded further to Stage-IV, then ASD will increase to 200 per cent apart from Stage-III criteria; trading is permitted once a month (first Monday of every month) with ASD of 200 per cent for Stage-V stocks; and for Stage-VI category, trading is permitted once a month with no upward movement in price of the security with 200 per cent ASD.

The main objective of these measures is to alert and advice investors to be extra cautious while dealing in these securities and advice market participants to carry out necessary due diligence while dealing in these securities, according to the BSE website.

A & B Groups

These are the most liquid counters among the whole lot of stocks listed on the BSE. These are companies which are rated excellent in all aspects. Volumes are high and trades are settled under the normal rolling settlement. The ‘T’ group represents securities which are settled on a trade-to-trade basis (compulsory delivery immediately) as a surveillance measure.

The ‘Z’ group includes companies which have failed to comply with its listing requirements and/or have failed to resolve investor complaints and/or have not made the required arrangements with both the depositories for dematerialisation of their securities.

Securities that are only listed/traded on the BSE and satisfy certain parameters are placed in separate sub-segments called ‘XC’, ‘XD’ and ‘XT’. At the time of review any securities falling in the trade-for-trade segment are classified under the ‘XT’ sub-segment. Securities that have a six-monthly average (full) market-cap of more than ₹100 crore but less than ₹1,000 crore and have more than 1,000 public shareholders are classified in the ‘XC’ sub-segment. The balance securities are classified in the ‘XD’ sub-segment.

NSE Series

The ‘EQ’ series stands for equity, while ‘BE’ (Book Entry) shares fall in the trade-to-trade and ‘IL’ series allows only FIIs to trade among themselves.

Earlier, the classification of the group was only for knowing the liquidity in the scrip (purely based on market-cap) or trade-for-trade, to check unusual rise in prices. But the evolution of GSM alters the trading risk completely. If you are an investor who blindly follow the market in the spirit of herd-mentality, it’s time to be aware of these checks and balances.