SEBI revises ESM framework, stocks allowed to trade on all days

On Tuesday, the NSE announced that the market regulator SEBI, in collaboration with NSE and BSE, has updated the surveillance actions within the Enhanced Surveillance Measures (ESM) framework. Previously, stocks categorized under ESM Stage II were allowed to trade once a week. However, the new revision allows these stocks to be traded on all trading days. 

Starting from July 24, 2023, exchanges will allow trading on all days, with a price band of +/- 2%. However, it’s important to note that the rule of 100% margin remains unchanged, as confirmed by the exchanges. 

Under revised ESM action, exchanges will allow T2T (trade-to-trade) settlement with a 100% margin. Previously, trading was allowed only once a week with Periodic Call Auction. However, all other regulations within the ESM framework remain unchanged, as clarified by the exchanges. 

The revised ESM framework was introduced after Mercury EV Tech, a company listed on BSE, filed a challenge with the Securities Appellate Tribunal against the previous ESM framework. 

On June 2, The ESM framework was introduced specifically for highly volatile “micro-small” companies, which are companies with a market capitalization of less than Rs 500 crore. SEBI uses parameters such as high-low price variation and close-to-close price variation to identify securities that fall under this framework. 

The ESM framework consists of two stages. The first one is Stage I, Securities categorised under these are settled through a trade-for-trade mechanism with a price band of either 5% or 2%. There have been no revisions to the regulations for Stage-I.  

Furthermore, under Stage II securities were only allowed to trade once a week as per the current surveillance action. However, this has now been revised, and trading for Stage II securities will be permitted on all trading days through periodic call auctions with a trade-for-trade settlement with a +/- 2% price band. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet, and is subject to changes. Please consult an expert before making related decisions.