Description

BSE updates the GSM framework by modifying the index-based exclusion to BSE 500/Nifty 500 and removing three exclusion categories, effective from the next quarterly review on June 19, 2026.

Summary

BSE, in coordination with SEBI following a Joint Surveillance Meeting held on May 15, 2026, has revised the Graded Surveillance Measure (GSM) framework. The update narrows the index-based exclusion from any BSE/NSE index to only BSE 500 or Nifty 500, and removes three existing exclusion categories entirely. The revised framework takes effect from the next quarterly GSM review scheduled for June 19, 2026, covering Quarter ended March 2026.

Key Points

  • The existing exclusion for securities part of any BSE or NSE index is replaced with a narrower exclusion for securities part of BSE 500 or Nifty 500 only.
  • Securities in smaller/sectoral indices that were previously protected from GSM placement are now eligible for inclusion.
  • Three exclusion categories have been completely removed from the GSM shortlisting process.
  • The revised GSM annexure is enclosed with the notice.
  • BSE and NSE are implementing this change jointly following a SEBI-Exchange surveillance meeting.

Regulatory Changes

Modification in Exclusion:

  • Old rule: Securities part of any BSE or NSE index were excluded from GSM.
  • New rule: Only securities part of BSE 500 or Nifty 500 are excluded from GSM.

Removal of Exclusions (three criteria eliminated):

  1. Securities with institutional holding greater than 10%, where (a) the promoter entity has not offloaded any share in the last 5 years, AND (b) the current trading price is within the 3-year High-Low range.
  2. Securities that have paid a dividend for each of the last three preceding years.
  3. Securities listed through a Scheme of Arrangement involving Merger/Demerger during the last 1 year, subject to the previously applicable sub-conditions:
    • Demerger: if parent is under GSM, resultant companies also attract GSM; if parent is not under GSM, resultant companies are not placed under GSM at time of demerger but considered at subsequent quarterly review.
    • Merger: if any merging security is under GSM purview, GSM continues on the resultant entity.

Compliance Requirements

  • Market participants should review their portfolios for securities that previously qualified under the removed exclusions but may now be eligible for GSM placement.
  • No immediate action is required before June 19, 2026; however, participants in smaller-index stocks or dividend-paying mid/small-cap securities should assess GSM risk exposure.
  • GSM framework will continue to operate in conjunction with all other prevailing surveillance measures imposed by exchanges.
  • For queries, contact: bse.surv@bseindia.com

Important Dates

  • May 15, 2026: Joint Surveillance Meeting of Exchanges and SEBI; circular issued.
  • June 19, 2026: Next quarterly GSM review (w.r.t. Quarter ended March 2026); revised framework becomes applicable.

Impact Assessment

This circular significantly broadens the pool of securities that can be placed under GSM by tightening the index-based exclusion and removing three protective criteria. Securities listed on smaller sectoral or thematic indices (outside BSE 500/Nifty 500) lose their automatic exclusion, making many mid- and small-cap stocks newly eligible for GSM stages. Removal of the institutional holding exclusion means even companies with strong FII/DII backing but weak fundamentals can be flagged. Elimination of the dividend-payment exclusion removes a historically used proxy for financial health from the protective criteria. Overall, the change is expected to expand the number of securities shortlisted for GSM scrutiny in the June 2026 quarterly review, increasing trading restrictions (price bands, additional surveillance deposits) for a wider set of equities.

Impact Justification

Expands the universe of securities eligible for GSM placement by narrowing index-based exclusions and removing three other exclusion criteria, directly affecting which stocks can face trading restrictions from June 19, 2026.