Starting August 13, stock exchanges will broaden their Enhanced Surveillance Measure (ESM) framework, extending its reach to include mainboard companies with a market capitalization of up to INR 1,000 crore. This move marks a significant expansion from the previous threshold, where only companies with a market cap below INR 500 crore were subject to these measures.
The ESM framework, first introduced in June of last year, was designed to tackle the high volatility often seen in micro-cap and small-cap stocks. The Securities and Exchange Board of India (SEBI) and stock exchanges have implemented various surveillance measures to maintain market integrity and protect investor interests. These include Graded Surveillance Measure (GSM), Additional Surveillance Measure (ASM), reducing price bands, periodic call auctions, and transferring securities to a trade-to-trade category.
The decision to extend the ESM framework came after a joint surveillance meeting between BSE, NSE, and SEBI. The framework’s criteria for selecting securities include significant fluctuations in price, both in terms of high-low variations and close-to-close price changes.
Under the expanded ESM framework, stocks that fall under Stage 1 will be subject to a trade-for-trade mechanism, with a tight price band of 5% or 2%. Meanwhile, stocks in Stage II will also be traded on a trade-for-trade basis but with an even narrower price band of just 2%.
This expansion is part of ongoing efforts to stabilize the trading environment, particularly for small-cap stocks, which can be more susceptible to sudden price swings. By bringing more companies under the ESM framework, SEBI and the exchanges aim to create a more controlled and transparent market, reducing the risk for investors and enhancing overall market confidence.
As this new framework rolls out, investors should be aware of the changes and how they may impact their trading strategies, especially when dealing with companies that fall within this newly expanded market cap range.
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