GSM List NSE

Frequently Asked Questions

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Graded Surveillance Measure (GSM) is a framework implemented by SEBI and NSE to monitor and control trading in certain securities. It aims to boost market integrity and protect investor interests by imposing various preemptive measures on stocks showing unusual price movements or not aligned with their financial fundamentals. These measures include trading restrictions, increased margin requirements, and other actions to ensure investors exercise caution and due diligence when dealing with such securities.

In the National Stock Exchange (NSE), Graded Surveillance Measure (GSM) is a framework brought forth to monitor and regulate trading in certain securities that exhibit unusual price movements, financials, or fundamentals. The goal of introducing GSM was to protect investor interests and market integrity through trading restrictions, higher margin requirements, and other actions. These preemptive measures ensure investors exercise caution and due diligence when dealing with securities falling under the GSM framework.

Selection Criteria -
Stocks are shortlisted based on specific criteria like low net worth, low fixed assets, high or negative price-to-earnings (PE) ratios, and low market capitalization.
Stages of Surveillance -
There are multiple stages in GSM, each with increasing levels of trading restrictions:
Stage I: 100% margin requirement and a price band of 5% or lower.
Stage II: Trade for Trade with a 5% price band and an additional surveillance deposit (ASD) of 50% of the trade value.
Stage III: Trade for Trade with a 5% price band, trading allowed once a week, and ASD of 100% of the trade value.
Stage IV: Trade for Trade with a 5% price band, trading allowed once a week, ASD of 100% of the trade value, and no upward price movement allowed.
Surveillance Actions -
Based on price movements and trading volumes, additional measures such as moving stocks between stages, requiring deposits in cash, and maintaining restrictions until further notice are imposed.
Quarterly Reviews -
Securities are reviewed quarterly to determine if they should remain under GSM based on updated financial data.

The primary objective is to alert investors to be cautious and conduct due diligence while dealing in these securities, ensuring overall market stability and integrity.

Stocks are selected for inclusion in GSM (Graded Surveillance Measure) based on the following criteria:

Criteria I -
Net Worth less than or equal to Rs. 10 crores.
Net Fixed Assets less than or equal to Rs. 25 crores.
Price to Earnings Ratio (PE) greater than 2 times the PE of the Benchmark Index (Nifty 500) or a negative PE.
Criteria II -
Market Capitalization less than Rs. 25 crores.
PE Ratio greater than 2 times the PE of the Benchmark Index (Nifty 500) or a negative PE.
Price to Book Value (P/B) greater than 2 times the P/B value of the Benchmark Index (Nifty 500) or a negative P/B value.

A stock remains in the GSM framework based on a quarterly review process. The specific duration depends on whether the stock continues to meet the GSM criteria during these reviews. Here's a simplified breakdown:

Initial Inclusion: Once a stock is included in GSM, it remains under surveillance until the next quarterly review.
Quarterly Reviews: Stocks are reviewed every quarter based on the latest financial data. If a stock no longer meets the criteria for inclusion, it can be moved out of the GSM framework.
Minimum Duration: Stocks are subject to GSM for at least one quarter (roughly three months) before they can be reviewed and potentially moved out if they no longer meet the criteria.

The exact time a stock stays in GSM can vary, but it will be reviewed every three months to determine if it should remain under the GSM framework or be removed.

Here are the stages of GSM:

Stage I -
Surveillance Action:
Applicable margin rate shall be 100%.
Price band of 5% or lower, as applicable.
Stage 2 -
Surveillance Action:
Trade for Trade with a price band of 5% or lower.
Additional Surveillance Deposit (ASD) of 50% of trade value to be deposited by the buyers.
Stage 3 -
Surveillance Action:
Trade for Trade with a price band of 5% or lower.
Trading permitted once a week (every Monday or the first trading day of the week).
ASD of 100% of trade value to be deposited by the buyers.
Stage 4 -
Surveillance Action:
Trade for Trade with a price band of 5% or lower.
Trading permitted once a week (every Monday or the first trading day of the week).
ASD of 100% of trade value to be deposited by the buyers.
No upward price movement is allowed.

Each stage imposes progressively stricter measures to curb excessive volatility and speculative trading in the securities under surveillance.

In the GSM framework, stocks face several restrictions that vary across different stages. Initially, a 100% margin requirement is imposed, and a price band of 5% or lower is applied. As a stock moves to further and further, no upward price movement is allowed in addition to other restrictions.

GSM can impact a company's stock price by reducing volatility and liquidity due to tighter trading restrictions, potentially leading to decreased investor confidence and higher trading costs. Overall, GSM aims to stabilize prices but may result in a decline in a stock's price due to reduced trading activity and market perception.

GSM aims to stabilize the overall stock market by reducing excessive volatility and speculative trading in specific securities, which enhances market integrity and safeguards investor interests. However, it may temporarily reduce market liquidity and investor confidence due to tighter trading restrictions and increased caution, potentially affecting overall market sentiment.

GSM is important for investors because it helps safeguard their interests by reducing excessive speculation and volatility in specific securities, ensuring a more stable and secure investment environment. It provides investors with increased confidence in the market and helps mitigate risks associated with highly speculative trading activities.

Buying GSM stocks can be riskier due to tighter trading restrictions and potential volatility. It's essential to conduct thorough research and understand the implications of GSM on the stock's liquidity and price movement. While GSM aims to stabilize the market, investors should weigh the risks and benefits before investing in these stocks.

Investing in stocks under the GSM category carries risks such as reduced liquidity due to trading restrictions, increased price volatility, and potential negative market perception. Additionally, these stocks may experience higher trading costs, and their prices could be impacted by sudden changes in trading conditions or investor sentiment. It's crucial for investors to carefully assess these risks and consider their investment objectives before trading GSM stocks.