What is an ASM list in the stock market?

Investing in the stock market is always fraught with danger. These risks are often any incidents that result in a loss or capital degradation for the investors. Nobody can predict how the stock market will behave. Although these swings cannot be avoided, regulators have implemented protections to protect both investors and exchanges. To mention a few, these safeguards include Graded Surveillance Measure (GSM), Upper & Lower Circuits, and ASM. The full form of ASM is an Additional Surveillance Measure.

Today, we will discuss and comprehend the mechanics of ASM. So let’s get started.

ASM (Additional Surveillance Measure)

Every irregularity or loophole exploited undermines the trust of the Indian stock market. The SEBI (Securities and Exchange Board of India) has implemented plenty of safeguards to protect investors’ interests. The Additional Surveillance Measures (ASM) list is part of the SEBI and Indian exchanges’ proactive surveillance measures.

The ASM list is a list of securities that are currently being monitored owing to price fluctuations, volatility, volume fluctuations, and so forth. Adani Power Limited, Apollo Pipes Limited, etc. are some of the stocks currently included in this list.. This list is intended to warn investors to exercise caution when dealing with these securities. SEBI and the exchanges choose which securities to add to this list based on the following criteria:

● High Low volatility
● Client Concentration
● Closure to Closure Price Variation
● Market Capitalization
● Volume Variation
● Delivery %
● No. of Specific PANs
● Price to Earning ratios

Parameters for ASM Shortlisting

A share is added to the ASM list if the following criteria are met.

● If the high-low price fluctuation has been 200 % or greater in the last three months, and the concentration of top 25 % clients has been 30% or greater in the last three months.
● If the high-low price difference has been 200 % or greater in the last three months, and the number of price band hits has been 30 % or greater in the same period.
● If the close-to-close price volatility for the last 30 trading days was 100% or greater, the PE was negative or greater than 30, and the concentration of top 25 clients was 30% or greater in the previous month.
● If the close-to-close price variance in the previous 365 days was greater than 100%. If the high-low variance in the recent 365 days was larger than 200%, the market cap was greater than Rs 500 crore, and the high-low variation in the latest 90 trading days was greater than 50%.
● If the close-to-close price variation in the last three months was greater than or equal to 50%, the concentration of top 25 clients in a quarter was greater than or equal to 50%, and five or more clients out of the top 25 clients had 50% or more of their trading activity in scrip and the market cap was greater than Rs 500 crore.

Exceptions of ASM Shortlisting Process

The following securities are excluded from the ASM shortlisting process:

● Public Sector Enterprises and Banks’ Shares
● Securities that are already GSM-enabled
● Securities that serve as the underlying asset for derivatives
● Securities that are already in the “trade for trade” category.

What is the purpose of the ASM List?

There are safeguards in place to prevent price fluctuations caused by speculation. When extreme high or low levels for single stocks or the entire market are reached, the circuit breakers are activated. As a result, trade in that particular stock or the entire market is paused for predetermined lengths of time. The trade standstill might sometimes last the entire trading day.

Circuit breakers cease all trading, which is a reasonable response to the extreme price change. However, there is still a lot of potential for unsteady movement between these two extremes. During this period of uncertainty, the ASM seeks to protect investors’ interests. Stocks that are shortlisted for the ASM list serve as a warning flag to investors of potentially volatile price movement. There are also some trading restrictions imposed on stocks that make the ASM list. These restrictions are intended to put a halt to any further speculation.

What happens when a stock is added to the ASM list?

As previously stated, stocks that enter the ASM list are subject to various restrictions. These stocks are subjected to the following method.

The stock’s inclusion on the ASM list is announced in advance. The T-day is the date on which this revelation is made. The stock is subject to a 5% price band beginning the day after the disclosure. This indicates that the stock’s price can climb or decrease by no more than 5% from the previous trading day’s closing price.

The stock has a 100 % margin from T+5 days. As a result of this restriction, margin trading is effectively disabled. This is because margin trading often permits traders to buy or sell equities at 35%-40% of their actual price.

Ex. If shares of company X enter the ASM on Monday 18/07/2022. The 5% price band will apply on Tuesday 19/07/2022. The 100% margin requirement will be applied on 25/07/2022 since the markets remain closed on Saturdays and Sundays.

An entry into the ASM list has no serious consequences. It is not a disciplinary action imposed as a result of a mistake made by the company. It is simply a notice intended to warn market players to exercise caution while dealing with these specific equities.

About the Author

Ketan Sonalkar (SEBI Rgn No INA000011255)

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

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