What Is Additional Surveillance Measure (ASM)?

The stock market thrives on transparency, stability, and investor confidence. However, certain securities often witness unusual volatility or price movement that may not align with their fundamentals. To protect investors from such potential risks, stock exchanges introduced the Additional Surveillance Measure (ASM) framework.

This mechanism acts as a safeguard to curb speculative trading and ensure that market activities remain fair and orderly. Let’s explore the meaning, objectives, stages, and implications of ASM in detail.

Objectives of Additional Surveillance Measure (ASM)

The Additional Surveillance Measure is a regulatory initiative introduced by the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) in coordination with the Securities and Exchange Board of India (SEBI).

Its primary objective is to enhance market integrity by identifying and monitoring securities that display abnormal price movements, volatility, or sudden increases in volume.

In essence, ASM aims to:

• Deter speculative trading and market manipulation.

• Alert investors about stocks showing unusual behavior.

• Ensure that price movements are driven by company fundamentals, not speculation.

• Protect retail investors from potential price shocks.

By flagging such securities, the exchanges encourage cautious trading and promote informed decision-making.

Types of Additional Surveillance Measure (ASM)

There are two main types of ASM frameworks applied by stock exchanges:

1. Short-Term ASM – Targets stocks that show sharp, temporary volatility or sudden surges in trading volumes within a short period. It is applied to curb short-lived speculation.

2. Long-Term ASM – Also known as long-term surveillance, this type focuses on securities that exhibit sustained, abnormal movement over an extended period. It aims to prevent prolonged speculative activity and protect investors in the long run.

Both frameworks have distinct criteria and thresholds but serve the same goal — ensuring market stability and transparency.

Criteria for Placing a Stock Under ASM

A stock is placed under the Additional Surveillance Measure based on several quantitative and qualitative factors. Some of the key parameters include:

• High price-to-earnings (P/E) ratio compared with industry peers.

• Sharp price appreciation not supported by financial performance.

• Increased price volatility and sudden rise in trading volume.

• Client concentration or high exposure of retail investors.

• Consistent abnormal returns over a specific period.

The exchanges evaluate these parameters periodically, and if a security meets the criteria, it is added to the ASM list for enhanced monitoring.

Stages of ASM Framework

ASM is generally implemented in two stages, each with increasing levels of surveillance and trading restrictions.

Stage I:

In the first stage, the exchanges apply basic measures such as higher margins (usually 50% or more) to discourage excessive speculation. This helps reduce leveraged positions and stabilize the price movement.

Stage II:

If a stock continues to show unusual activity even after Stage I measures, it moves to Stage II. Here, stricter trading restrictions may apply — including 100% margin requirements, price band tightening, and trade-to-trade settlement (meaning intraday trading is not allowed).

A stock may move between these stages based on its price performance and compliance with the surveillance criteria.

Key Measures Applied Under ASM

When a security is placed under the Additional Surveillance Measure, the exchanges implement several controls to regulate its trading activity. These may include:

• Increased margin requirements to curb excessive leverage.

• Reduced price bands (e.g., 5% instead of 10%) to limit volatility.

• Trade-to-trade settlement, restricting intraday trades.

• Periodic review to determine whether the stock continues to meet ASM criteria.

• Investor alerts, informing traders that the stock is under surveillance.

These measures act as preventive steps rather than punitive actions. The goal is not to penalize companies but to ensure safe and fair market participation.

Impact of ASM on Stocks

When a stock is placed under ASM, its trading dynamics can change significantly.

• Reduced liquidity: Stricter rules often discourage short-term traders, lowering trading volumes.

• Limited volatility: Tighter price bands help control extreme price swings.

• Cautious sentiment: Retail investors may become more hesitant to trade the stock, given the added risk perception.

While these effects may seem restrictive, they protect investors from sudden losses and reduce the chances of price manipulation.

How Long Does a Stock Stay Under ASM?

The duration of an Additional Surveillance Measure classification varies. It depends on how long the stock continues to meet the surveillance parameters.

Typically, a security is reviewed every few weeks or months. If it shows price stability and improved trading patterns, it can be removed from the ASM list. However, if irregular activity persists, the surveillance period may be extended.

Hence, investors should monitor exchange circulars regularly to track updates on the ASM list.

How Investors Should React When a Stock Is Under ASM?

If a stock in your portfolio is tagged under ASM, there’s no immediate reason to panic. Instead, consider these steps:

• Review fundamentals: Analyze the company’s earnings, balance sheet, and business outlook.

• Avoid speculation: Refrain from high-risk short-term trades during the surveillance period.

• Diversify holdings: Reduce exposure to any single stock under ASM.

• Stay informed: Follow NSE and BSE announcements for updates on ASM movements.

Informed investors treat ASM as a signal to reassess their positions rather than an automatic trigger to sell.

Difference Between ASM and GSM (Graded Surveillance Measure)

While both ASM and GSM serve investor protection goals, they differ in application and intent.

In short, ASM addresses speculative activity, while GSM targets structurally weak securities.

Conclusion

The Additional Surveillance Measure is an essential framework designed to maintain fairness and integrity in the stock market. It protects investors from volatility-driven risks and ensures that price movements align with underlying fundamentals.

While it may temporarily restrict trading activity, the long-term outcome is a more transparent and stable market. For investors, the best approach is to remain informed, focus on quality companies, and view ASM as a tool for awareness rather than alarm.