Description

BSE announces revised ESM framework with updated shortlisting criteria based on price variations and introduces two-stage surveillance system with specific margin and trading restrictions.

Summary

BSE has announced a comprehensive revision to its Enhanced Surveillance Measure (ESM) framework, introducing stricter shortlisting criteria based on high-low and close-to-close price variations. The revised framework establishes a two-stage surveillance system with escalating restrictions including 100% margins, trade-for-trade settlement, reduced price bands, and periodic call auction mechanisms for qualifying securities.

Key Points

  • New shortlisting criteria based on standard deviation of price variations for companies with market cap less than ₹1000 crores
  • Two-stage surveillance system with progressive restrictions
  • Securities with derivative products excluded from ESM shortlisting
  • Stage I: 100% margin and trade-for-trade with 5% (or 2%) price band
  • Stage II: 100% margin with 2% price band under periodic call auction
  • Weekly review process for stage revision and exit
  • Minimum retention period of 90 calendar days in framework

Regulatory Changes

Shortlisting Criteria (Stage 1):

  • High-Low price variation thresholds: 75% (3 months), 100% (6 months), 150% (12 months)
  • Close-to-Close price variation thresholds: 50% (3 months), 75% (6 months), 100% (12 months)
  • Must meet 1 standard deviation criterion for respective company category
  • Requires positive close-to-close variation over last three months

Stage II Entry Conditions:

  • 5 consecutive trading days with ≥15% close-to-close variation, OR
  • Monthly close-to-close variation ≥30%
  • PE ratio ≤0 or >2 times BSE 500 benchmark PE

Compliance Requirements

For Stage I Securities:

  • 100% margin applicable from T+2 day
  • Trade-for-trade settlement mandatory
  • Price band restriction to 5% (or 2% if already in 2% band)

For Stage II Securities:

  • 100% margin requirement continues
  • Trading restricted to ±2% price band
  • All trading under Periodic Call Auction mechanism

Market Participants:

  • Must comply with enhanced margin requirements
  • Adhere to restricted trading mechanisms for ESM securities

Important Dates

  • Implementation: Framework effective from circular date
  • Review Frequency: Weekly basis for stage revision and exit
  • Minimum Retention: 90 calendar days in ESM framework
  • Stage II Minimum: 1 month retention before potential downgrade to Stage I

Impact Assessment

Market Impact:

  • Increased surveillance on volatile small and mid-cap securities
  • Enhanced margin requirements may reduce speculative trading
  • Trade-for-trade settlement reduces liquidity for affected securities
  • Periodic call auction mechanism significantly limits trading flexibility

Operational Impact:

  • Brokers must implement enhanced margin collection systems
  • Trading systems require updates for new price band restrictions
  • Compliance monitoring systems need alignment with revised criteria
  • Investor education required on new framework implications

Risk Mitigation:

  • Stronger controls on price manipulation and excessive volatility
  • Protection for retail investors through enhanced surveillance
  • Systematic approach to identifying and monitoring high-risk securities

Impact Justification

Significant revision to surveillance framework affecting trading conditions, margins, and price bands for qualifying securities