ADDITIONAL SURVEILLANCE MECHANISM
1. Context
The National Stock Exchange (NSE) on Thursday (February 2) placed Adani Enterprises, Adani Ports, and Ambuja Cements under the additional surveillance mechanism (ASM), Reuters reported. This means trading in their shares will require a 100% margin, which is aimed at curbing speculation and short-selling. The move comes as shares of Adani group companies continue to fall in the wake of accusations of stock manipulation and fraud leveled against the group by New York-based short seller Hindenburg Research.
2. What is an Additional Surveillance Mechanism (ASM)?
- The ASM was introduced on March 26, 2018, with the intention to protect investors from market volatility and unusual changes in share price.
- According to the National Stock Exchange (NSE) website, “In continuation to various surveillance measures already implemented, SEBI and Exchanges, pursuant to discussions in joint surveillance meetings, have decided that along with the aforesaid measures, there shall be Additional Surveillance Measures (ASM) on securities with surveillance concerns based on objective parameters viz. Price / Volume variation, Volatility, etc.”
- The shortlisting of securities for placing in ASM is based on criteria that are jointly decided by the Securities and Exchange Board of India (SEBI) and exchanges, covering the parameters of “high low variation, client concentration, PE, close to close price variation, market capitalization, volume variation, delivery percentage, and the number of unique PANs”, the NSE FAQs say.
- SEBI has not announced any probe into the Adani shares crash so far.
3. Importance of ASM in the Stock Market
- ASM is really important, keeping in mind the volatility of the Indian stock market.
- Let’s understand this with an example.
- If today, a stock enters the surveillance list. After entering the ASM, it will be moved to a 5% price band on the next day, which means now its price can only move 5% upwards or downwards from the previous day’s closing level.
- The stock that entered the ASM list will discontinue if it is found to break the law of 5%. We can easily conclude from this that the stock is under strict rules upon entering the ASM list.
- Now assume that from the 5th day of trading, 100% of the margin money will be required to trade the stock, and if the PE ratio is moved above 100, the stock will come under the trade-to-trade settlement.
- Also, if the PE ratio is less than 10 or the Nifty 500 index, then the stock is removed from the list.
- Hence, we can say this discourages the intraday traders from trading, and the fight among these traders leads to a decrement in the price of the stocks that are seen as a drop in the price of the stock.
4. Why should we care about ASM?
- Exchanges say that the stocks coming under the Additional Surveillance Measure do not reflect the company’s condition, quality, and position.
- Contrary to this, in the BSE 500 and NIFTY500 indices, these stocks under ASM are the defeated ones.
- It looks like a panic situation is created to sell off the stocks coming under the surveillance list. Even if you think of it as not a panic situation, then also you will get stuck with that 5% band criteria.
- Being an investor is not easy as you have to monitor the fluctuations, the variations, and the changes in the market to make the best investment, irrespective of the type of investor you are, a long-term investor or a short-term investor.
5. How much have Adani Stocks Fallen?
- According to a report by the AP, Adani company shares are still losing value. Shares in Adani Enterprises fell 27% on Thursday, while six other Adani companies fell 5%-10%.
- The cumulative route in a week is now close to $108 billion is one of the biggest wipeouts in India’s history.
- Gautam Adani’s personal fortune sank to $72 billion from $120 billion before the Hindenburg Research report came out, according to Bloomberg’s Billionaire Index.
On Wednesday, the Adani Group called off its Rs 20,000 crore follow-on public offer (FPO) and announced it would return the money to investors. - This means the group will no longer have the funds it had launched the FPO to raise.
For Prelims
| For Prelims: Additional Surveillance Mechanism (ASM), National Stock Exchange (NSE), Securities and Exchange Board of India (SEBI), BSE 500, and NIFTY500. |
Source: The Indian Express
