What Are Surveillance Measures and the Risks Associated with Them?

Surveillance measures are regulatory actions introduced by SEBI and stock exchanges to monitor and control the trading of securities. These measures aim to safeguard investors, prevent market manipulation, and maintain overall market integrity. When a security falls under surveillance, traders are notified of the applicable restrictions and actions before placing an order.

Types of Surveillance Measures

1. Additional Surveillance Measure (ASM): Designed to address potential risks of price volatility or manipulation. Learn more: What is ASM?
2. Graded Surveillance Measure (GSM): Applies stage-wise restrictions on stocks deemed highly speculative. Learn more: What is GSM?
3. Enhanced Surveillance Measure (ESM): Targets securities with irregular trading patterns.
4. Inter Creditor Agreement (ICA): Applicable to companies undergoing financial restructuring.
5. Promoter’s Holding Pledged: Monitors securities where significant promoter holdings are pledged.

Risks Associated with Surveillance Measures

1. Trade-to-Trade (T2T) Restrictions:

• Securities in the T2T segment require mandatory delivery-based settlement. Intraday trading is not allowed.
• If a T2T stock is bought, it cannot be sold on the same day; it must be sold on T+1 day. Learn more: What are T2T stocks?

2. Price Band Limits:

• Strict price band limits (e.g., 5% or lower) are imposed to control volatility.
• These limits are typically applicable under measures like:
• LT ASM Stage 4
• All stages of GSM, ESM, and IBC

3. Additional Margin Requirements:

• Securities under surveillance may require higher margins:
• • 1. GSM Stage 2: 50% Additional Surveillance Deposit (ASD)
    2. GSM Stages 3 & 4, IBC Stages 1 & 2: 100% ASD

• These margins remain blocked by exchanges for extended periods.

4. Limited Trading Frequency: Securities under measures like GSM Stage 3 or above and IBC Stage 2 may be allowed to trade only once a week.

5. Periodic Call Auctions:

• Illiquid stocks, defined by criteria such as low daily trade counts and volumes, are traded via periodic call auctions to manage volatility.

Stocks Transferred to the T2T Segment

Securities are moved to the T2T segment under the following circumstances:

• LT ASM Stage 4
• GSM Stage 2 and above
• ESM Stages 1 & 2
• IBC Stages 1 & 2

Conclusion

Surveillance measures are essential to ensure fair and transparent trading practices. While they protect market participants, these measures can impose additional costs and restrictions. Traders must stay informed about the regulatory framework and assess the associated risks before engaging in these securities.