Widely read:
The Indian stock market has been engulfed by an unusual wave of speculation, with the S&P BSE SME IPO index surging from a modest 1,400 points in September 2020 to a staggering 35,000 points in September 2023. This has raised concerns with the Securities and Exchange Board of India (SEBI), prompting it to take decisive action. On September 25, 2023, it rolled out the Additional Surveillance Measure (ASM) and Trade-to-Trade (T2T) settlement to regulate the sudden price inflation among SME stocks.
What is Additional Surveillance Measure (ASM)?
The ASM mechanism aims to control the extreme volatilities in the market. It acts as a safety net for stocks and prevents deceitful price movements and excessive price speculation. By introducing ASM as part of the S&P BSE index, SEBI's objective is to regulate the excessive rise in SMEs' share value due to alleged speculation and market manipulation.
Protection for retail investors
Over a decade ago, SEBI introduced a minimum lot size of at least Rs 1-1.5 lakh to deter retail investors from increasing price volatility and uncertainty of SME shares. Despite the measures, investment remained unaffected in such companies. In fact, new SME stocks have received great reception from retail investors, especially during the
IPOs
.
Retailers' rush towards IPOs
Retail participation in SME IPOs has been at record levels in recent times
| Company name | Issue size (In cr) | Total subscription | Retail subscription |
|---|---|---|---|
| Kahan Packaging | 5.76 | 730.45 | 1042.37 |
| Basilic Fly Studio | 66.35 | 358.6 | 415.22 |
| Oriana Power | 59.66 | 176.58 | 204.04 |
| Kaka Industries | 21.23 | 292.66 | 358.88 |
| Drone Destination | 44.2 | 191.65 | 250.09 |
According to SEBI and various stock exchanges, several attempts have been made at SME stock manipulation due to a multifold increase in retail investor participation. To combat this, SEBI included all SME stocks in ASM and implemented a T2T settlement. It implies that these stocks cannot be used for intraday trading, which would help control stock price speculation.
Key takeaway
The introduction of ASM and T2T by SEBI is a step in the right direction. However, as mentioned earlier, restricting trading of SME stocks has not impacted retail investor participation. Hence, much more must be done to regulate share price manipulation and speculation.
Also read: Small is (not really) beautiful
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