What is ASM and GSM in the Stock Market?

Overview

We all work better under certain supervision and guidance. Somebody should always be there to correct our mistakes, otherwise, our mistakes can affect others too. The same goes for the stocks, one mistake a company commits can impact its investors heavily. So to supervise these mistakes, SEBI has introduced two core frameworks named, ASM and GSM. 

ASM stands for Additional Surveillance Measure and GSM stands for Graded Surveillance Measures. 

Market surveillance measures were introduced by SEBI in 1995 to make sure investors’ interests are very well protected and transparency is maintained between buying and selling of securities. This framework helps in monitoring market activities, identifying price volatility, and analyzing causes of probable speculation and manipulation. 

What is GSM (Graded Surveillance Measure)?

Definition and Purpose

The Securities and Exchange Board of India introduced GSM as a regulatory mechanism utilized by stock exchanges and other market authorities. Its primary goal is to improve market integrity and protect investors by monitoring and prohibiting stock transactions involving unusual or suspicious trading behavior.

Criteria for GSM Inclusion

Stocks that are put under the GSM Framework are selected based on:

• Unnecessarily high volatility and price variations
• Unusual price movement not supported by either fundamental or technical analysis
• Significant changes in trading volumes
• Excessive speculation and probable manipulation in trading behavior 
• Company not complying with regulatory behaviors

Process of Implementation

Once a stock is identified for inclusion in GSM, it is punto several categories based on its factors of inclusion. Here’s what the process looks like: 

1. Identification: Stocks are identified based on predefined criteria by seeing and observing unusual activities.

2. Categorization: Based on the severity of the issues identified, GSM stocks are placed under different stages. 

3. Notification: Investors and market participants of the stock are duly notified about the inclusion and the corresponding restrictions put on the stock.

4. Monitoring: Continuous surveillance is conducted from the stock exchange to assess the effectiveness of the measures put on the stock and to formulate the plan for future action.

Different Grades and Their Implications

Multiple stages or grades are included in GSM, each with specific restrictions to reduce excessive volatility and speculative trading. The stages include:

• Stage 0: It is the initial stage with very minimal restrictions
• Stage 1: In this stage, margin requirement increases with trade restrictions 
• Stage 2-6: In this stage, progressive restrictions are put under the stock, including mandatory deposits, trading restrictions on intraday trades, and restrictions on price movements.

Impact on Stocks and Investors

GSM has an impact on the buying behavior of investors since it imposes trading limitations, which can lower liquidity and raise transaction costs. This can result in lower revenue and lower short-term volatility. For some investors, GSM serves as a warning flag, suggesting the stock’s hazards. Long-term investors can benefit from reduced speculating, whilst short-term traders may struggle owing to limited options and insufficient cash.

Overall, the GSM aims to create a more stable and transparent market environment that protects investors from adverse conditions while preserving market integrity.

Also Read: SLBM

What is ASM (Additional Surveillance Measures)

Definition and Purpose

ASM is a regulatory framework introduced by SEBI for improving market integrity and protecting investors by closely monitoring and regulating securities that engage in unusual or suspicious trading practices mainly manipulation or speculation. ASM is implemented by exchanges in partnership with legal authorities such as the Securities and Exchange Board of India (SEBI). It aims to decrease unnecessary volatility, safeguard market interest, and ensure price stability through fundamental principles.

Criteria for ASM Inclusion

Stocks that are put under ASM are selected based on uncertain criteria that are:

• Significant price volatility and unusual price movement.
• Variations in trading volumes
• Few investors buy a certain stock in bulk
• The company is not complying with disclosure and regulatory requirements.
• Financial health indicators such as financial stress or performance concerns.

Process of Implementation

The process of implementing ASM and GSM are quite same and involves:

1. Identification: Stocks that come under ASM criteria are identified through regular surveillance and monitoring.

2. Categorization: The identified stocks are put under the ASM framework, which includes additional margins, trading restrictions, or enhanced disclosure requirements.

3. Notification: Market players and participants, including brokers and investors, are informed about the inclusion of stock under ASM and the specific measures it is subjected to.

4. Monitoring and Review: Continuous monitoring of stocks that are put under ASM is done, and these measures are reviewed periodically. Stocks may come under and out of the ASM framework based on their performance and compliance with the criteria and overall market behavior.

Impact on Stocks and Investors

Here’s of stock’s inclusion in ASM impacts investors and the stock itself: 

For Stocks: Increased surveillance measures in stock can lead to increased scrutiny, reduced transaction costs, and liquidity, due to additional margins or trading restrictions. This can stabilize prices by reducing speculative activities.

For Investors: ASM serves as a warning indicator for investors that signals stock-related adversities. Long-term investors can profit from increased stability and protection against market manipulation, however, short-term traders may struggle due to tight rules and limited liquidity.

ASM aims to encourage a fair and transparent market environment for both companies and investors, ensuring that price movements showcase fair market conditions and protect investors from possible and uncertain adversities

Difference between ASM and GSM 

Conclusion 

ASM and GSM are essential frameworks created by SEBI to protect investor interests and market integrity. While ASM focuses on reducing excessive volatility and ensuring market stability through increased surveillance and trading limits, GSM takes a tiered approach to addressing different levels of speculative trading and potential manipulation. Both methods serve as warning signs for investors, encouraging transparency and mitigating unnecessary risks. ASM and GSM strive to create a fair and stable market environment by safeguarding long-term investors from bad conditions while limiting short-term speculative actions. Understanding these metrics enables investors to better navigate the stock market, making informed decisions that are consistent with their investing plans and risk tolerance.

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