In order to regulate the extremely volatile equities on the Indian stock market, SEBI and recognised stock exchanges established Additional Surveillance Measure (ASM) in 2018. It works as a speculative trading control measure to protect retail investors' interests and shield them from risky trading circumstances.
The ASM list is a list of securities that are currently getting monitored due to factors like price fluctuation, volatility, volume variance, etc. Stocks that are shortlisted for inclusion on the ASM list serve as a warning to investors about unusual price movement. There are certain trading restrictions on these stocks to put an end to any potential conjecture.
How are the stocks affected after being added to the ASM list?
A stock that is included on the ASM list is subject to more stringent rules. They can't be pledged and are also forbidden from intraday leverages like cover orders and bracket orders, among others.
Five days after the stock is added to the list, it is subject to a 100% margin. This restriction effectively makes margin trading impossible. This is due to the fact that margin trading often enables traders to purchase or sell stocks at a discount of between 35 and 40 percent below the stock's real price.
These stocks are further susceptible to a 5% circuit filter. This implies that a stock that is listed on the ASM market may not have share price fluctuations of more than 5%. As a result, traders' profit or loss is constrained. The stock price remains stable as a result of this. working best for long-term retail investors as a result.
The company's actions that benefit the investors are unaffected despite being included to the ASM list. The standard procedures are followed for benefits such dividends, bonuses, and stock splits
What effect will it have on the investors?
If one owns a stock that is now subject to the ASM framework, little will change in terms of trading, but low leverage may cause a drop in volume. According to experts, those shares cannot be used as collateral. Given the 5 percent price range, these scrips can only have a maximum uptick or downtick of 5 percent, which will result in lower volatility.
“Trade will pretty much remain the same, but lower leverage could reduce volumes. Collateral may not be provided for stocks under this category, so liquidity will reduce,” said Nikhil Kamath, Co-founder, Zerodha.
The ASM framework will be used in conjunction with existing current exchange-mandated surveillance procedures. According to analysts, this effort is unlikely to have a significant influence on investors because it is only based on market monitoring and does not call into question the basic nature of a corporation.
Investors should be aware that adding a stock to this list does not subject it to punishment. This method regulates price movement in order to safeguard investors and warn them to exercise caution when dealing with the stocks on the ASM list. By avoiding market manipulation and shielding inexperienced investors from high-risk equities, additional surveillance measures assist safeguard markets.