Description

NSE updates ESM criteria and thresholds for companies with market cap below ₹1000 crores, effective July 28, 2025.

Summary

NSE has revised the Enhanced Surveillance Measure (ESM) framework applicable to companies with market capitalization below ₹1000 crores. The revision updates both the criteria for shortlisting securities and the stage-wise movement under the framework, while maintaining the same actions for each stage. The new framework becomes effective from July 28, 2025, following a joint surveillance meeting between exchanges and SEBI held on July 25, 2025.

Key Points

  • Revised shortlisting criteria based on High-Low price variation and Close-to-Close price variation over 3, 6, and 12-month periods
  • New minimum thresholds: High-Low variation (75%/100%/150%) and Close-to-Close variation (50%/75%/100%)
  • Securities with derivative products remain excluded from ESM shortlisting
  • Stage I action includes 100% margin from T+2 day and Trade-for-Trade settlement with 5% price band (or 2% if already in 2% band)
  • Framework applies in conjunction with other prevailing surveillance measures

Regulatory Changes

The ESM framework has been updated with new quantitative criteria for identifying securities requiring enhanced surveillance:

Stage 1 Shortlisting Criteria (Either condition must be met):

  1. High-Low Price Variation in 3/6/12 months ≥ 1 Standard deviation with minimum thresholds of 75%/100%/150% respectively, AND positive close-to-close price variation over last three months
  2. Close-to-Close Price Variation in 3/6/12 months ≥ 1 Standard deviation with minimum thresholds of 50%/75%/100% respectively

Exclusions: Securities with available derivative products are excluded from shortlisting.

Compliance Requirements

  • Market Participants: Must comply with ESM framework alongside other surveillance measures
  • Market Makers: Required to follow SEBI guidelines and adhere to market making obligations for ESM securities as per specified SEBI circulars
  • NSE Members: Must implement new margin and settlement requirements for identified securities
  • Securities under Stage I: Subject to 100% margin and Trade-for-Trade settlement with specified price bands

Important Dates

  • Circular Date: July 25, 2025
  • Effective Date: July 28, 2025
  • Implementation: List of shortlisted scrips under amended framework to be published accordingly from effective date

Impact Assessment

Market Impact:

  • Affects all small-cap companies (market cap < ₹1000 crores) traded on NSE
  • Stricter surveillance criteria may reduce speculative trading in volatile small-cap securities
  • Higher margin requirements (100%) will increase capital costs for trading these securities

Operational Impact:

  • Market makers must maintain obligations for ESM securities despite enhanced restrictions
  • Trade-for-Trade settlement reduces liquidity but increases transparency
  • Price bands (2% or 5%) limit intraday volatility
  • Enhanced pre-emptive surveillance aims to protect investor interests and maintain market integrity

Impact Justification

Affects all small-cap securities with market cap below ₹1000 crores, introduces stricter surveillance criteria and higher margin requirements