GSM stands for ‘Graded Surveillance Measure’. In order to enhance market integrity and safeguard interest of investors, Securities
and Exchange Board of India (SEBI) and Exchanges, have been introducing various
enhanced surveillance measures such as reduction in price band, periodic call auction
and transfer of securities to Trade to Trade segment from time to time.
The main objective of these measures are to -
- Alert and advise investors to be extra cautious while dealing in these securities and
- Advise market participants to carry out necessary due diligence while dealing in these securities.
This framework came into effect on 14th March 2017.
The exchanges and SEBI do a quarterly review of securities whose prices move notwithstanding the expectations set my the stock’s fundamentals. In doing so, stocks are graded from category I to category VI.
What this means is, stocks categorised in stage II to stage VI will require the buyer to make an additional security deposit with the exchange for these trades. This deposit is not released once the buyer squares-off the position. In order for the ASM to be released, the stock needs to be promoted to a Stage of surveillance where the requirement of deposit is lower or 0. This is a move to dissuade investors from trading these stocks.
The securities shall move to various stages of GSM in a sequential order from Stage I to Stage VI as and when the criteria for the respective stage is satisfied. This is done on the basis of a quarterly review. More details on this can be found on this NSE FAQ on the subject.
In order to avoid such a deposit being charged and funds being blocked indefinitely for the same, it is best to check if any T2T (trade for trade) stocks you’re trading have been categorised in stage II or above. NSE and BSE, both publish this data on their respective websites.
Also, BSE has introduced a new S+ framework, click on the link for more -