Description

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

Summary

NSE, in coordination with SEBI and other exchanges following a Joint Surveillance Meeting on May 15, 2026, has revised the Graded Surveillance Measure (GSM) Framework. The update modifies one existing exclusion and removes three others, effective from the next quarterly review scheduled on June 19, 2026 (w.r.t. Quarter ended March 2026).

Key Points

  • The index-based exclusion is narrowed: only securities part of Nifty 500 or BSE 500 (instead of any NSE or BSE index) will be excluded from GSM shortlisting.
  • Institutional holding exclusion (>10% holding with no promoter offloading in 5 years and price within 3-year range) is removed.
  • Dividend payment exclusion (securities paying dividend for each of last three years) is removed.
  • Scheme of Arrangement exclusion (merger/demerger listings within last 1 year) is removed, replaced with specific GSM carry-over rules for demerged/merged entities.
  • GSM framework operates in conjunction with all other prevailing surveillance measures.

Regulatory Changes

Modification in Exclusion:

  • Old: Securities part of any Index (NSE or BSE) were excluded.
  • New: Only securities part of Nifty 500 or BSE 500 are excluded. Securities on smaller indices no longer qualify for automatic exclusion.

Removal of Exclusions:

  1. Securities with institutional holding >10% (subject to no promoter offloading in 5 years AND price within 3-year high-low range) — exclusion removed.
  2. Securities that paid dividends for each of the last three preceding years — exclusion removed.
  3. Securities listed through Scheme of Arrangement (merger/demerger) in the last 1 year — exclusion removed, with new carry-over rules:
    • Demerger: If parent is under GSM, resultant demerged companies also attract GSM. If parent is not under GSM, demerged companies are excluded at time of demerger but considered in the next quarterly review.
    • Merger: If any merging security was under GSM, GSM continues on the resultant entity.

Revised GSM Criteria (Mainboard):

Criteria I: Net worth ≤ Rs. 10 crores AND Net Fixed Assets ≤ Rs. 25 crores AND PE > 2x Nifty 500 PE or negative PE.

Criteria II: Full market cap < Rs. 25 crores AND (PE > 2x Nifty 500 PE OR, for negative PE: P/B > 2x Nifty 500 P/B or negative P/B).

Revised GSM Criteria (SME):

Criteria I: Net worth ≤ Rs. 5 crores AND Net Fixed Assets criteria (content truncated in source).

Compliance Requirements

  • All NSE members must note the revised GSM framework and updated exclusion criteria.
  • Market participants should reassess holdings in securities that previously qualified for exclusion under removed categories, as these securities may now be shortlisted under GSM.
  • Members should continue to comply with all other prevailing surveillance measures imposed by exchanges.
  • Queries may be directed to surveillance@nse.co.in.

Important Dates

  • May 15, 2026: Circular issued; Joint Surveillance Meeting of Exchanges and SEBI held.
  • June 19, 2026: Revised GSM framework becomes effective, starting with the next quarterly review (w.r.t. Quarter ended March 2026).

Impact Assessment

This update materially expands the pool of securities eligible for GSM shortlisting. By restricting the index exclusion to only Nifty 500/BSE 500 constituents, securities on smaller indices (e.g., sectoral, thematic, or mid/small-cap indices outside these two) lose their automatic safe-harbor. The removal of institutional holding and dividend-based exclusions eliminates two widely-used criteria that protected fundamentally active companies from GSM. The removal of the scheme-of-arrangement exclusion, coupled with GSM carry-over rules for mergers and demergers, closes a potential structuring loophole. Collectively, these changes are likely to increase the number of securities placed under GSM in the June 19, 2026 quarterly review, with potential trading restrictions (circuit filters, margin requirements, periodic call auction) affecting a broader universe of listed companies.

Impact Justification

This circular significantly tightens the GSM framework by narrowing index-based exclusions and removing institutional holding, dividend payment, and scheme of arrangement exclusions, potentially bringing more securities under enhanced surveillance from June 19, 2026.