What is Additional Surveillance Measure (ASM)? A Complete Guide For Investors

If you actively participate in the share market or track market news, you might have heard the term ‘stocks under ASM’.

The full form of ASM is Additional Surveillance Measure. ASM is a regulatory framework introduced jointly by the National Stock Exchange (NSE) and BSE under the guidance of the Securities and Exchange Board of India (SEBI). The framework was announced through exchange circulars dated March 21, 2018, and came into effect on March 26, 2018. It aims to safeguard investors' interests and curb excessive speculation in stocks.

This comprehensive guide explains everything you need to know about ASM, how it works, its types, stages, impact, and more.

What is ASM in the Share Market?

ASM is a surveillance framework that helps the NSE and the BSE identify securities exhibiting unusual price movements, abnormal trading volumes, excessive speculation, or concentrated trading activity.

Stocks under ASM may attract higher margin requirements, depending on the applicable surveillance stage and exchange requirements, making speculative trading more expensive. Certain securities may also be shifted to the trade-to- trade segment, where every trade requires compulsory delivery, eliminating intraday trading.

The ASM framework consists of different surveillance stages. As a stock moves to higher stages, stricter trading conditions and surveillance measures are applied to control excessive volatility.

Being included in the ASM stock list does not imply financial weakness or regulatory violations by the company. Instead, it serves as a precautionary mechanism that encourages investors to be more careful when buying and selling ASM stocks.

Why Was ASM Introduced?

The ASM framework was introduced to achieve three specific goals:

• Investor Awareness:

Encourage investors to remain cautious while trading securities displaying unusual price or volume behaviour, reducing impulsive investment decisions.

• Due Diligence Promotion:

Motivate traders and investors to carefully analyse company fundamentals, financials, and risks before investing in identified ASM stocks.

• Market Integrity:

Improve transparency, discourage excessive speculation, and strengthen confidence by maintaining a fair and orderly share market environment.

Why Are Stocks Placed Under ASM?

Stocks are included under ASM when exchanges observe unusual trading behaviour that may indicate excessive speculation or abnormal market activity. The decision is based on predefined surveillance parameters.

A stock may enter the ASM stock list because of sudden price rallies, sharp declines, unusually high trading volumes, concentrated buying by a limited number of investors, abnormal valuations, or speculative trading patterns.

Exchanges periodically review these stocks, and if the abnormal activity reduces, they may remove them from ASM.

The objective is not to penalise companies but to ensure that trading remains transparent and investors receive an appropriate cautionary signal before participating in such securities.

Parameters Considered Under ASM

The parameters for short-listing securities under ASM are as follows:

High-Low Price Variation:

The exchanges assess whether the stock has witnessed unusually large price fluctuations over the previous three months compared with its normal trading behaviour.

Client Concentration:

The exchange identifies situations where a limited number of investors account for a significant portion of the total trading volume over recent sessions.

Close-to-Close Price Variation:

The exchange evaluates substantial changes in daily closing prices across different observation periods to detect any abnormal price movements.

Market Capitalisation:

It considers the company’s market capitalisation while applying suitable surveillance criteria across different categories of listed companies.

Volume Variation:

Sudden increases in trading volumes compared with the stock’s historical average may indicate unusual investor participation.

Delivery Percentage:

The exchange reviews the proportion of shares taken for actual delivery instead of intraday trading to identify unusual trading patterns.

Number of Unique PANs:

A lower number of unique Permanent Account Number (PAN) holders in a particular stock may indicate concentrated market participation.

P/E Ratio:

The price-to-earnings (P/E) ratio compares the company’s valuation with broader market benchmarks to identify stocks trading at unusually high or negative earnings multiples.

Types of ASM in the Share Market

ASM is divided into two main types: Short-term ASM and Long-term ASM.

Short-term ASM

Short-term ASM is applied to stocks experiencing temporary abnormal price movements, sudden trading volume spikes, or speculative activity over a period of five to fifteen days, depending on the applicable exchange framework.

This type of ASM operates between Stage I and Stage II. It may involve temporary additional margin requirements, including margins of up to 100% in certain cases, depending on the applicable surveillance stage and exchange circulars.

Exchanges review these securities frequently, and once trading behaviour normalises, they may remove the stock from the ASM framework during periodic assessments.

Long-term ASM

Long-term ASM applies to stocks showing persistent abnormal trading behaviour over an extended period. This type of ASM operates through multiple surveillance stages, involving measures such as additional margin requirements, trade restrictions where applicable, and other surveillance measures specified by the exchanges.

These securities remain under continuous surveillance for longer periods and are periodically reviewed by the exchanges. Additional margins and monitoring remain applicable until the stock consistently meets the required surveillance standards.

Short-Term ASM vs Long-Term ASM

Here are the key differences between short-term ASM and long-term ASM:

What are ASM Stages?

ASM stages refer to different levels of surveillance applied by the NSE and BSE to stocks exhibiting abnormal trading activity. These stages ensure that securities are closely monitored and appropriate trading measures are applied to help maintain fair and orderly trading.

ASM Stage I

In Stage I, stocks are placed under initial surveillance with increased margin requirements. Trading continues normally, but investors are advised to exercise greater caution.

ASM Stage II

In Stage II, higher margin requirements or other trading measures specified by the exchanges are imposed to discourage excessive speculative trading. The stock remains under close monitoring by the exchanges.

ASM Stage III

Stage III involves stricter surveillance measures, including significantly higher margins and tighter trading conditions, making leveraged trading more difficult than before.

ASM Stage IV

This is the highest level of ASM surveillance. The stock is subject to the strictest trading restrictions and continuous monitoring until the trading pattern returns to normal, and it meets the exit criteria set by the exchanges.

Comparison of ASM Stages

Here is the comparison of different stages in ASM:

Impact of ASM on Stocks

Here is how stocks are impacted when included in the ASM list.

• Higher Margin Requirements:

Investors may need to maintain larger margins, reducing speculative leveraged trading in the concerned stock.

• Reduced Liquidity:

Trading volumes often decline because higher trading costs discourage short-term speculative participation.

• Lower Price Volatility:

Surveillance measures help stabilise excessive price fluctuations by limiting speculative buying and selling.

• Improved Monitoring:

Exchanges continuously observe trading activity to identify whether abnormal behaviour continues or returns to normal.

• Periodic Review:

Stocks are regularly assessed and may exit the ASM stock list after satisfying the applicable surveillance criteria.

Impact of ASM on Investors

Here is how investors are impacted when trading stocks included in the ASM list.

• Greater Caution:

Investors become more careful before purchasing ASM stocks due to increased surveillance by the exchanges.

• Higher Trading Cost:

Increased margin requirements reduce leverage and require more capital for trading activities.

• Better Risk Awareness:

ASM alerts encourage investors to study company fundamentals before making investment decisions.

• Reduced Speculative Opportunities:

Short-term traders may find fewer opportunities because of stricter trading conditions.

• Improved Market Confidence:

Surveillance measures promote fair trading practices, enhancing overall confidence in the share market.

Are Stocks Under ASM Fundamentally Weak?

Not necessarily. A stock appearing under ASM does not automatically indicate poor financial performance, weak management, or corporate governance issues. Many fundamentally strong companies have entered the ASM stock list because of unusual trading activity, sudden price rallies, or speculative interest.

Investors should avoid making decisions solely based on ASM classification. Instead, they should evaluate the company’s financial statements, earnings growth, industry outlook, valuations, and management quality before investing.

ASM is primarily a surveillance mechanism and should not be treated as an indicator of a company’s long-term business prospects.

Key Risks in Trading ASM Stocks

Risks in trading ASM stocks are as follows:

• Liquidity Risk:

ASM restrictions discourage speculative traders, reducing trading volumes and liquidity. Selling stocks at desired prices can become difficult during periods of low participation.

• Negative Sentiment:

The ASM label may create a negative bias in the market, causing additional selling pressure as some investors react to the surveillance classification.

• Exit Difficulty:

In the higher stages of ASM, tighter trading restrictions may make it more difficult to exit a position quickly, particularly if the stock approaches its lower circuit limit.

How Can Investors Approach ASM Stocks?

Investors should approach ASM stocks with careful research rather than reacting emotionally to their inclusion in the surveillance list. Before investing, examine the company’s financial performance, business model, valuation, promoter holdings, debt levels and future growth prospects.

Long-term investors should focus on fundamentals, while traders should be aware of higher margin requirements and reduced liquidity. Diversification and disciplined risk management remain essential when dealing with ASM securities.

Difference Between ASM and GSM

Here are the differences between ASM and GSM, which an investor should know:

How to Check the ASM Stocks List?

Investors can check the latest ASM stock list by visiting the official websites of the NSE or the BSE. Both exchanges publish updated circulars and surveillance notices whenever stocks are added to or removed from the Additional Surveillance Measure (ASM) framework.

The list is reviewed periodically based on market activity, so investors should always refer to the latest exchange notification before making any trading or investment decision.

Brokerage firms also display ASM status for many stocks, making it easier for investors to identify securities under surveillance.

FAQs

What is ASM in the share market?

Additional Surveillance Measures (ASM) is a framework used by the NSE and BSE to monitor stocks showing abnormal price movements or unusual trading activity.

Does ASM mean a company is fundamentally weak?

No. A stock can enter the ASM stock list because of unusual trading patterns even if the company’s financial performance remains strong.

Can ASM stocks be traded?

Yes. ASM stocks continue to trade on the stock exchanges, although higher margins and additional surveillance measures may apply.

Who decides whether a stock is placed under ASM?

The NSE and BSE, under SEBI’s regulatory framework, determine whether a stock should be included in the ASM framework.

How often is the ASM stock list updated?

The exchanges periodically review the ASM stock list based on surveillance parameters and may add or remove stocks depending on their trading behaviour.

Where can investors check the latest ASM stock list?

Investors can access the latest ASM stock list through official surveillance circulars published by the NSE and the BSE, as well as through brokerage platforms.