What is GSM List in Stocks: During the 1980s and 1990s, the financial markets became a sensation among the people in India. Since then the markets have seen a multifold increase in participation by the investors. With this, the number of scams through market manipulations also increased significantly. The need for strong regulations was felt in the market to protect the interests of the individual investors who got affected the most.
The SEBI has introduced measures such as the Additional Surveillance Measure (ASM) and Graded Surveillance Measure (GSM) list. The purpose of this list is to include stocks with high price volatility. In this article, we will learn what is GSM list in stocks. Keep reading to find out!
What is Market Surveillance?
Before diving into the topic, let us first understand what does market surveillance mean? Market Surveillance plays a key role in ensuring the integrity of the markets. The Market Surveillance Division was set up in Securities and Exchange Board of India (SEBI) in July 1995. The purpose was to keep a proactive oversight on the activities of the stock exchanges.
The division is involved in monitoring the market movements, identifying price volatility, analysing its causes and overseeing the surveillance activities of the stock exchanges. The main source of information for the Division is the trading data obtained from the stock exchanges. Newspaper reports, investor complaints, market intelligence, etc are also used as a source. It also analyses major market movements in the wake of significant market-sensitive information.
What is GSM List?
SEBI has introduced various enhanced pre-emptive surveillance measures. Such as reduction in price band, periodic call auction and transfer of securities to Trade to Trade category from time to time. The GSM framework monitoring has come into force with effect from 14 March 2017. The GSM list will include all the companies that witness abnormal price rise that is not commensurate with the financial health and fundamentals of the company.
The factors considered include earning, book value, fixed assets, net worth, P/E multiple, etc. These companies are often characterized as penny stocks. They are illiquid and have poor fundamentals. Such securities are often vulnerable to financial misconduct.
What are the Criteria for shortlisting securities?
Criteria I: The following 3 criteria must be met:
- The latest available Net worth of the security is less than or equal to Rs. 10 crores
- The latest available Net Fixed Assets (Tangible Assets + Capital Work in Progress) less than or equal to Rs. 25 crores, AND
- The Security has a PE greater than 2 times PE of Benchmark Index (Nifty 500) OR a negative PE.
Criteria II: The following criteria shall be made applicable for the inclusion of securities directly under GSM – Stage I.
- Securities with a full market capitalization of less than Rs. 25 crore; AND
- Securities with PE greater than 2 times PE of Benchmark Index (Nifty 500)
- Securities with negative PE, are considered if:
- P/B (Price to Book) value of scrip greater than 2 times the P/B value of Benchmark Index (Nifty 500) OR
- P/B value is negative
How does the GSM List Work?
The securities shall move to various stages of GSM in sequential order from initial shortlisting. There are four stages. The stock moves on to each stage when the criteria for the respective stage is satisfied. These movements are based on pre-defined objective criteria. However, this information is not currently disseminated in the public domain.
The following are the stages:
|I||The Applicable margin rate shall be 100% and a price band of 5% or lower shall be applicable|
|II||Trade for trade with a price band of 5% or lower as applicable and Additional Surveillance Deposit (ASD) of 50% of trade value to be deposited by the Buyers.|
|III||Trade for trade with a price band of 5% or lower as applicable and Trading permitted once a week (Every Monday/1st trading day of the week) And ASD (100% of trade value) to be deposited by the buyers.|
|IV||Trade for trade with a price band of 5% or lower as applicable and Trading permitted once a week (Every Monday/1st trading day of the week) And ASD (100% of trade value) to be deposited by the buyers with no upward movement.|
ASD: The ‘buyer’ of the security is liable to pay the ASD for securities shortlisted under Stages II and above under GSM and shall be collected from the ‘buying’ Trading Member. ASD will be debited on a T+1 basis from the primary clearing account for the capital market segment of the aforesaid Trading Members by NSE Clearing Limited. It shall be paid in the form of cash only. ASD shall be over and above existing margins or deposits levied by the Exchanges on transactions in such companies and shall be interest-free.
Exclusion from the List Includes Securities:
- Securities where the price discovery is yet to take place as per the provision of SEBI circulars CIR/MRD/DP/01/2012 and CIR/MRD/DP/02/2012 dated January 20, 2012.
- Are already under suspension.
- Securities on which derivative products are available.
- Securities as a part of any index (NSE or BSE).
- Public Sector Enterprises and its subsidiaries, if available.
- Listed during last 1 year through Initial Public Offering (IPO).
- Securities have paid a dividend for each of the last three preceding years.
- Securities with Institutional holding greater than 10% only if the promoter entity has not offloaded any share in the last 5 years AND the current trading price of the security is within the range of High & Low price in last 3 years of the respective security.
How do these Stocks Get Out of the GSM List?
The Identification and review of the securities in the Graded Surveillance list shall be carried out on a quarterly basis. If the securities are not meeting the inclusion Criteria I and II then they will be removed from the list.
The review shall be carried out based on the latest available quarterly consolidated/standalone results filed by the companies. It can be as per preference opted by companies under the SEBI (LODR) Regulations, 2015, which are submitted within 45 days from the end of the quarter. In the case of annual results, it is within 60 days from the end of the financial year.
Over the years the authorities had come up with numerous policies and guidelines applicable to all the participants in the market. One such initiative is the Graded Surveillance Measures (GSM) list. In this article, we covered what is a GSM list in the stocks and what are its implications.
It should be noted that the companies that make it to the list also have the option to move out of it. This is just a mechanism used to check the price volatility in the market. As an investor, it is important to stay updated with such lists so as to make an informed decision.
That’s all for this article. Happy Reading!