What Is ASM in Share Market?

ASM (Additional Surveillance Measure) in the share market is a specific surveillance mechanism introduced by SEBI (Securities and Exchange Board of India) and the stock exchanges (BSE or NSE). This helps track stocks experiencing unusual price volatility, high volume, or speculative trading. The reason is a safety mechanism that alerts investors while helping control manipulation, often leading to more stringent trading regulations, such as lower price bands, higher margins, and trade-for-trade settlements. 

Thus, the primary objective of ASM is to protect investors and maintain market integrity. Stocks are chosen based on several factors, while there is a trading impact as well (across multiple types). However, it is important to remember that ASM is not a ban or stoppage of trading; it only indicates heightened surveillance and associated risks. Short-term ASM applies to stocks with sharp, sudden movements, while long-term ASM applies to stocks with sustained, unusual trading patterns. Let us learn more about it below. 

What is ASM?

ASM stands for Additional Surveillance Measure. This is a regulatory mechanism used by stock exchanges to track stocks exhibiting unusual volatility, price manipulation, or high trading volume. The main purpose is to safeguard investors, boost market integrity, and reduce excessive speculation by imposing restrictions (such as higher margins) on the shortlisted securities. 

Here are some key aspects of ASM that you should know more about: 

• Objective - The primary objective is to alert investors to higher-risk stocks and to combat market manipulation. 
• Trigger Criteria - Stock selection is based on objective criteria, including volume spikes, price fluctuations, high price-to-earnings ratios, and client concentration. 
• Stock Impact - Investors may sometimes have to pay up to a 100% margin when buying these stocks, while permissible price movements within a day may be limited. There is also the Trade-to-Trade segment, which comes with compulsory delivery-based trading to eliminate intraday speculation. 
• Stages - ASM is classified into multiple stages, i.e. Stage I, II, etc. The higher stages indicate stringent surveillance in this case. 
• Types - ASM is categorised as short- and long-term, based on the duration of unusual trading activity. 

Why Do Exchanges Place Stocks Under ASM

Exchanges put stocks under ASM (additional surveillance measures) to safeguard investors and enable market integrity. This is done to control excessive volatility, speculative trading, and abnormal price movements. This serves as a warning mechanism for stocks exhibiting unusual volume or price movements, thereby often limiting intraday speculation and mitigating risk. 

Here are some of the main reasons behind ASM placement: 

• Abnormal Volume or Price Movements - Stocks are added to the list in case they show unjustified and sudden spikes in prices, higher volatility, or high-volume concentration (which do not sync with the fundamentals of the companies in question). 
• Preventing Manipulation - This is a regulatory, proactive tool to combat speculative trading and other pump-and-dump schemes. It is designed to prevent market manipulation. 
• Protecting Investors - This measure serves as a red flag, alerting investors to exercise caution and conduct due diligence before investing in particular stocks. It aims to make investors more aware of the higher risks associated with a specific security. 
• Higher Client Concentration - ASM may also be triggered when a small number of clients account for a large share of the overall trading volume. 

Parameters Considered Under ASM

The ASM (Additional Surveillance Measure) framework, as implemented by the Indian stock exchanges (BSE and NSE) and SEBI, uses several quantitative, dynamic, and objective parameters. These help identify stocks that have unusual volatility, price movements, and trading volumes. 

The core parameters for short-listing securities under ASM include the following: 

• High-Low Price Variations - The difference between the lowest and highest prices over a given period may indicate high volatility. 
• Close-to-Close Price Variations - Sudden changes in daily closing prices, especially when they are not backed up by company news/developments (variations ≥ 25% in 5 consecutive days). 
• Client Concentration - Higher concentration of trading volumes in the hands of only a few clients (say the top 25 clients contribute to more than 25-30% of the combined trading volumes). 
• Variations in Volumes - Sudden increases in daily trading volumes may indicate speculative activity. 
• Market Capitalisation - The size of the company, when combined with high volume, may indicate speculation rather than long-term investment. 
• P/E Ratio - Extremely negative or high P/E (price-to-earnings) ratios relative to the benchmark or sector index may indicate abnormal valuations. 
• Number of Unique PANs - A lower number of unique PANs (permanent account numbers) trading a stock may indicate concentrated ownership or manipulative trading. 

Yet, there are some exemptions, i.e., securities under GSM (Graded Surveillance Measures), PSU/PSB, and even those with derivative products are usually handled separately from the ASM framework. At the same time, long-term ASM criteria are more extensive (based on metrics over 60 or 90 days), while short-term ASM focuses on trends over 5-15 days. Surveillance may also be applied by the exchanges on a case-by-case basis. 

Short-Term ASM vs Long-Term ASM

Short-Term ASM and Long-Term ASM differ in specific ways, even though they are both SEBI-driven frameworks that restrict trading in volatile stocks to safeguard investors. 

Short-Term ASM targets short-lived and immediate volume/price spikes with moderate restrictions. On the other hand, Long-Term ASM targets abnormal or persistent behaviour over several months, thereby imposing major restrictions, such as 100% margin requirements. 

The main points of difference include the following: 

• Objectives and Duration - Short-Term ASM is temporary (reviewed throughout 5-15 trading days) in order to manage sharp and sudden movements in prices. Long-Term ASM, on the other hand, is for ongoing and sustained manipulation or excessively high volatility over several months or a year. 
• Trigger Criteria - Short-Term ASM focuses more on sudden spikes, such as price variations exceeding 25% over five consecutive days. Long-Term ASM, on the other hand, focuses more on high-low price variations, client concentration, and cumulative changes in market capitalisation. 
• Stages of Restrictions - Short-Term ASM comes with temporary but immediate margin requirements, sometimes limiting trading to 100% cash and often serving as a red flag. Long-Term ASM operates in stages from I to IV, involving measures such as 100% margin requirements, limited trading volumes, and price band tightening (down to 5% or less). All of these aspects may lead to lower liquidity levels. 
• Exit Framework - ST (Short-Term) ASM stocks may swiftly exit once trading stabilises. On the other hand, LT (Long-Term) ASM stocks require a consistent period of normal behaviour prior to removal. They often remain under surveillance for much longer durations. 

What Happens When a Stock Comes Under ASM

Whenever a stock comes under ASM (additional surveillance measure), exchanges may increase surveillance on it for various reasons (listed above). This usually leads to higher margins, restrictions on the T2T (trade-to-trade) segment (not allowing intraday trading), and more stringent price bands. Let us look at these developments in slightly more detail below: 

• Higher Margin Requirements - Traders may have to deposit up to 100% of the trade value in cash. This impacts their ability to leverage funds. 
• T2T (Trade-to-Trade) Category - Stocks are moved to T2T settlement. This means that all transactions must be delivery-based (100% delivery-based), and no speculative/intraday trading will be permitted. 
• Lower Volatility and Liquidity - Higher restrictions and costs often lead to lower trading volumes. It may lead to reduced liquidity and reduced sudden price volatility as well. 
• No Pledging is Allowed - Pledging these shares to get collateral margins is not allowed. It may affect margin requirements for other trades as well. 
• More Stringent Price Bands - The allowed daily price movement may be limited to curb large fluctuations down the line. 
• Protecting Investors - ASM is not a ban or penalty on the company in question. It is only a safety mechanism to safeguard investors from abnormal or speculative trading. 

ASM has several stages, with increasingly stringent restrictions in the event of continued volume and price volatility. 

How ASM Affects Intraday, Leverage, Margins, and Settlement

ASM (Additional Surveillance Measure) is a regulatory tool used by stock exchanges to control high volatility in specific stocks, unusual price movements, and excessive speculation. When a stock enters the ASM list, it has a direct impact on how it is traded, particularly in areas such as intraday trading, leverage, margins, and settlement. Let us examine the same below: 

Intraday Trading: 

• Intraday trading is often restricted or outright banned, particularly at higher ASM stages such as II, III, or IV. 
• Traders cannot take intraday positions (buying today and selling tomorrow) to benefit from short-term price movements. 
• Only delivery-based trading (CNC) will be allowed. This means that investors should hold the stocks in their demat accounts. 

Leverage: 

• ASM eliminates the ability to use borrowed funds or leverage from the broker, which is otherwise a standard practice for intraday trading. 
• Investors must deposit the full value of the trade (100% margin requirement) upfront. No additional buying power is given in this case. 
• Shares under ASM cannot be pledged to get collateral margin. If they are already pledged, the margin benefit is likewise removed. 

Margins: 

• In ASM Stage 1, margins are usually increased (typically by 50% or more). 
• In ASM Stage 2 and above, 100% of the traded value is held as margin, thereby increasing trading costs. 
• Exchanges may also impose additional volatility or special margins on such scrips, thereby further increasing the required upfront capital. 

Settlement: 

• ASM stocks, especially those in the advanced stages, are often shifted to the T2T category. 
• Transaction settlement is often on a gross basis, meaning no netting of buy and sell positions is permitted between days or clients. 
• No BTST/STBT - Buying Today, Selling Tomorrow or Selling Today, Buying Tomorrow is generally not permitted, as the trade must settle via delivery. 

Here is a glimpse of the differences: 

Does ASM Mean the Stock Is Fundamentally Weak?

A stock being placed under the ASM (additional surveillance measure) does not automatically indicate fundamental weakness. While ASM stocks are often considered high-risk options, the framework here is only for surveillance by exchanges and SEBI. They aim to track any abnormal trading behaviour, but it is not a direct indicator of a company's financial health. It serves as a red flag or cautionary signal to investors to conduct thorough due diligence, without being a declaration of fraud or bankruptcy. 

A company with strong fundamentals and robust earnings may be added to the ASM list if its share price rises too quickly due to market hype or heavy speculation. You should understand the fundamental difference between ASM and GSM. The latter is the Graded Surveillance Measure and focuses on companies that are fundamentally weak or those which have poor corporate governance standards.

Long-term investors should not worry unnecessarily if a particular stock makes it to the ASM list. If your market research and inputs indicate strong company fundamentals, think of it as a temporary tag/phase due to market speculation. This is in no way a quality rating and only indicates the stock being risky at present due to higher volatility. 

How to Check Whether a Stock Is Under ASM

To examine whether a stock is under ASM (Additional Surveillance Measure), you can check the ASM reports on the NSE website (https://www.nseindia.com/reports/asm) or the official site of the BSE. This will help you check the updated daily list of short-term and long-term ASM stocks.

At the same time, several trading platforms and apps highlight ASM stocks on their order screens with special tags. Exchanges also issue circulars regularly on the entry and exit of securities within the ASM framework. 

So, make sure you are aware of these stocks while trading. Also note that when a stock is in ASM, the exchange may increase the margin requirements by up to 100%. This means that you should have the full funds available to trade in your account. Stocks will also be segmented into short-term and long-term ASM, with various surveillance stages. 

What Investors Should Do Before Trading ASM Stocks

Here are some things that you should do as an investor before you trade in ASM stocks: 

• Always verify the ASM stage carefully - You should first check the official BSE or NSE website for the latest ASM list. This will help you verify whether a stock is in Stage I, II, III, or IV. The stage will indicate how severe the restrictions are for the stock. 
• Understand the margin requirements beforehand - You should be ready for 100% margin requirements (with upfront funds) to buy these shares. This is because intraday leverage is generally not allowed for these stocks. 
• Verify the T2T (trade-to-trade) status - If a stock is in a higher ASM stage (e.g., Stage II, III, or IV), it may be shifted to the T2T segment. This means mandatory delivery of shares, while intraday trading is restricted in most cases. What it does is make swift exits next to impossible. 
• Evaluate the reasons for inclusion -Do your research on why a stock has been flagged (unusual variations in volume or prices and client concentration). This will help you understand whether this is due to speculation or genuine fundamental problems. 
• Review the fundamentals of the company - Do not rely solely on price action. Evaluate the company’s basic fundamentals, such as earnings, management quality, balance sheets, etc. This will help you understand whether the stock prices are backed up by solid performance. 
• Check the price band limitations - ASM stocks may often have stringent price bands (for example, 5% or lower). This restricts the daily upside and downside, thereby reducing any swift, speculative returns. 
• Analyse the collateral value - Stocks on the ASM list are usually not allowed to be pledged as collateral. If any pledged stock is added to the ASM list, the broker may remove it from the collateral list as well. This will affect overall liquidity considerably. 
• Lower position sizing for risk management: Taking the risks of price declines and higher volatility into account, try to reduce your ASM stock exposure. This will help you mitigate the potential effect on your portfolio. 
• Setting stringent stop-losses: You can use stop-loss orders to safeguard your capital if the stock price does not recover. 
• Use official data inputs - Always rely on official exchange circulars and company disclosures rather than tips on social media or other unverified rumours. ASM stocks often experience a lot of what experts call market noise, so use only official data inputs.

These are some of the measures you can take while investing in ASM stocks.