In a move aimed at curbing speculative trading in the small and medium enterprises (SME) segment, both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) have taken steps to bring SME stocks under the Additional Surveillance Measures (ASM) framework and the trade-to-trade settlement.
This decision was made during a joint surveillance meeting involving the stock exchanges and the market regulator, the Securities and Exchange Board of India (SEBI). The primary objective is to discourage speculative trading practices in the SME sector, which can be particularly vulnerable to market manipulation.
Under the ASM framework, stocks are placed under additional surveillance measures if they meet certain criteria, such as exhibiting a high degree of price volatility and significant fluctuations in trading volumes compared to the monthly average. Stocks under ASM also require higher margin requirements, making it less attractive for speculative trading.
The trade-to-trade (TFT) framework, often referred to as the “T-segment,” mandates strict trading rules. In this segment, speculative trading is prohibited, and every trade requires the actual delivery of shares and payment of the consideration amount. This framework is designed to promote genuine investment and reduce the potential for market manipulation.
The introduction of these measures for SME stocks aligns with SEBI’s broader efforts to enhance market integrity and protect the interests of retail investors. By subjecting SME stocks to these stricter surveillance measures, the regulators hope to minimize price manipulation and ensure a more transparent and secure trading environment for investors in these companies.
It’s worth noting that the application of these surveillance measures is not intended as an adverse action against the concerned SME companies or entities. Instead, it serves as a preemptive step to maintain market integrity and prevent irregular trading activities.
The circulars issued by BSE and NSE have outlined the implementation timeline for these frameworks. They are set to be made available by October 3, 2023. Market participants, including traders and investors in SME stocks, should be prepared to adhere to these new regulations and trading restrictions once they come into effect.
SEBI and the stock exchanges have consistently worked together to introduce surveillance measures that promote fair and transparent trading practices in the Indian stock market. These measures are essential for maintaining investor confidence and ensuring that market participants operate within the boundaries of ethical and legal trading norms.
As SMEs play a crucial role in the Indian economy, providing them with a secure and regulated trading environment is essential for their growth and development. The extension of surveillance measures to SME stocks is a proactive step to achieve this goal and protect the interests of all market participants.
