ASM and GSM: Safeguarding your investments in the stock market

Additional surveillance measure (ASM) and Graded surveillance measure (GSM) are two important methods to ensure fair and transparent trading, in the Indian stock markets. They help in protecting investors from potential risks. In this article, let's understand ASM and GSM, so that you can navigate the complexities of the stock market.

What is ASM (Additional Surveillance Measure)?

ASM is basically a safety net for stocks. The focus of the ASM mechanism is to control the extreme volatilities in the market which are not supported by factors such as client concentration (the number of people who book the orders on a given trading day) and various other predefined parameters. Some of them include price variation, average daily volume, etc., and this mechanism ensures that the stocks don't experience sudden and extreme price swings.

Think of it as a system that prevents deceitful price movement and excessive speculation. The ultimate goal of ASM is to discourage speculators and intraday traders from taking heavy positions in these stocks.

What is GSM (Graded Surveillance Measure)?

Similarly, introduced in 2017 by SEBI, GSM is like a warning system for stocks, especially for micro-cap stocks . It was introduced by SEBI to alert investors about securities experiencing unusual price movements that do not commensurate with their financial health.

Again, this mechanism is also based on various criteria such as net worth, net fixed assets, P/E, P/B, and market cap. SEBI suggests all market participants dealing in GSM securities should be extra cautious and diligent.

What is the difference between ASM and GSM

ASM and GSM criteria are both conditions to control the volatility and ensure that stock prices don't swing wildly. It's all about maintaining stability and preventing sudden market fluctuations. While ASM applies for all stocks, GSM primarily focuses on penny and micro-cap stocks as they are more prone to price manipulation. As a result, it also involves consideration of fundamental metrics when it comes to inclusion of stocks under GSM.

Both ASM and GSM are crucial methods to maintain fairness and transparency in the market. SEBI mentions that shortlisting of securities under ASM is purely on the basis of market surveillance. However, it should not be construed as an adverse action against the company. That said, investors are still advised to examine the companies deeper and do their due diligence.

Also read: How to crash-proof your equity investments

This article was originally published on November 09, 2023.