The NSE and BSE use surveillance tools such as price bands, Additional Surveillance Measures (ASM), Graded Surveillance Measures (GSM), trade-to-trade settlement, margin requirements, and disclosure norms to curb excessive speculation and protect retail investors. These mechanisms\u2014regulated by SEBI\u2014help maintain market integrity, reduce volatility manipulation, and promote transparent price discovery.<\/p>\n
Indian equity markets have witnessed significant growth in retail participation over the past decade. While broader participation strengthens capital markets, it also increases the risk of excessive speculation, price manipulation, and herd-driven volatility\u2014particularly in small- and mid-cap stocks.<\/p>\n
To maintain orderly markets, both the National Stock Exchange of India<\/span><\/span> (NSE) and BSE Limited<\/span><\/span> (BSE) implement structured surveillance mechanisms under the regulatory oversight of the Securities and Exchange Board of India<\/span><\/span> (SEBI).<\/p>\n These measures are not meant to restrict genuine investing activity but to curb excessive speculation, protect investors, and preserve market confidence.<\/p>\n Excessive speculation occurs when stock prices move sharply without corresponding changes in fundamentals such as earnings, assets, or business prospects.<\/p>\n Common signs include:<\/p>\n Sudden sharp price spikes in low-liquidity stocks<\/p>\n<\/li>\n Unusual trading volumes<\/p>\n<\/li>\n Price manipulation through coordinated trading<\/p>\n<\/li>\n Pump-and-dump schemes<\/p>\n<\/li>\n Rapid upper or lower circuit hits<\/p>\n<\/li>\n<\/ul>\n Unchecked speculation can:<\/p>\n Distort price discovery<\/p>\n<\/li>\n Harm retail investors<\/p>\n<\/li>\n Reduce trust in markets<\/p>\n<\/li>\n Increase systemic risk<\/p>\n<\/li>\n<\/ul>\n This is where exchange surveillance becomes critical.<\/p>\n SEBI is India\u2019s capital market regulator and empowers exchanges to implement surveillance measures under the SEBI Act and Listing Obligations and Disclosure Requirements (LODR).<\/p>\n Exchanges operate automated surveillance systems to monitor:<\/p>\n Abnormal price movements<\/p>\n<\/li>\n Abnormal trading volumes<\/p>\n<\/li>\n Concentrated trading patterns<\/p>\n<\/li>\n Insider trading risks<\/p>\n<\/li>\n<\/ul>\n SEBI also mandates public disclosures to improve transparency.<\/p>\n Below are the major tools used to control speculation:<\/p>\n Price bands limit the daily price movement of a stock.<\/p>\n Purpose:<\/strong> Impact on speculation:<\/strong> ASM is applied to stocks showing unusual price or volume behavior.<\/p>\n High price volatility<\/p>\n<\/li>\n High trading volumes<\/p>\n<\/li>\n Client concentration<\/p>\n<\/li>\n Price movement not aligned with fundamentals<\/p>\n<\/li>\n<\/ul>\n ASM is dynamic and can be applied or removed based on behavior.<\/p>\n GSM is typically applied to companies with weak fundamentals but high price volatility.<\/p>\n Trade-for-trade settlement<\/strong> means no intraday square-off is allowed\u2014every trade must result in delivery.<\/p>\n This significantly discourages speculative intraday trading.<\/p>\n Under T2T:<\/p>\n Every buy transaction results in compulsory delivery<\/p>\n<\/li>\n No intraday netting allowed<\/p>\n<\/li>\n<\/ul>\n Impact:<\/strong> Margins are upfront collateral required for trading.<\/p>\n If speculation rises:<\/p>\n Exchanges increase margin requirements<\/p>\n<\/li>\n Leverage reduces<\/p>\n<\/li>\n Risk exposure decreases<\/p>\n<\/li>\n<\/ul>\n Higher margins mean traders must commit more capital, reducing reckless speculation.<\/p>\n In the derivatives segment, exchanges impose:<\/p>\n Market-wide position limits (MWPL)<\/p>\n<\/li>\n Client-level position limits<\/p>\n<\/li>\n Ban periods if limits are breached<\/p>\n<\/li>\n<\/ul>\n If open interest crosses prescribed thresholds, the stock may enter a F&O ban period<\/strong>, restricting fresh speculative positions.<\/p>\n Exchanges may seek clarifications from companies when:<\/p>\n Stock price moves sharply<\/p>\n<\/li>\n Rumors circulate<\/p>\n<\/li>\n Media reports influence prices<\/p>\n<\/li>\n<\/ul>\n Companies must confirm or deny material information, improving transparency.<\/p>\n During periods of sharp small-cap rallies, certain fundamentally weak stocks witnessed rapid price surges.<\/p>\n When such stocks:<\/p>\n Showed abnormal volumes<\/p>\n<\/li>\n Had weak financials<\/p>\n<\/li>\n Experienced unexplained price spikes<\/p>\n<\/li>\n<\/ul>\n They were placed under GSM.<\/p>\n Result:<\/strong><\/p>\n Trading volumes reduced<\/p>\n<\/li>\n Speculative interest declined<\/p>\n<\/li>\n Volatility moderated<\/p>\n<\/li>\n<\/ul>\n Retail investors were alerted to higher risk levels.<\/p>\n When derivative positions exceed prescribed limits, exchanges impose F&O ban periods.<\/p>\n Impact:<\/strong><\/p>\n Prevents excessive leveraged positions<\/p>\n<\/li>\n Reduces systemic risk<\/p>\n<\/li>\n Limits artificial price inflation<\/p>\n<\/li>\n<\/ul>\n This mechanism has historically helped cool overheated counters.<\/p>\n
\nWhat Is Excessive Speculation?<\/h2>\n
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\nRegulatory Framework: SEBI\u2019s Role<\/h2>\n
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\nKey Surveillance Measures Used by NSE & BSE<\/h1>\n
\n1. Price Bands (Circuit Filters)<\/h2>\n
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\n \nCategory<\/th>\n Typical Price Band<\/th>\n<\/tr>\n<\/thead>\n \n Large-cap stocks<\/td>\n 10% or 20%<\/td>\n<\/tr>\n \n Mid\/small caps<\/td>\n 5%, 10%, or 20%<\/td>\n<\/tr>\n \n SME stocks<\/td>\n Often lower bands<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n
Prevents extreme volatility and panic-driven trading in a single day.<\/p>\n
Reduces the speed at which speculative bubbles inflate.<\/p>\n
\n2. Additional Surveillance Measure (ASM)<\/h2>\n
Trigger conditions may include:<\/h3>\n
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Possible restrictions:<\/h3>\n
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\n \nASM Restriction<\/th>\n Objective<\/th>\n<\/tr>\n<\/thead>\n \n Higher margin requirements<\/td>\n Reduce leveraged speculation<\/td>\n<\/tr>\n \n Reduced intraday leverage<\/td>\n Limit excessive trading<\/td>\n<\/tr>\n \n Periodic call auctions<\/td>\n Improve price discovery<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n
\n3. Graded Surveillance Measure (GSM)<\/h2>\n
Key characteristics:<\/h3>\n
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\n \nGSM Stage<\/th>\n Restriction Level<\/th>\n<\/tr>\n<\/thead>\n \n Stage I<\/td>\n Enhanced monitoring<\/td>\n<\/tr>\n \n Stage II<\/td>\n Trade-for-trade settlement<\/td>\n<\/tr>\n \n Stage III\u2013VI<\/td>\n Higher margins + trading restrictions<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n
\n4. Trade-to-Trade (T2T) Settlement<\/h2>\n
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Discourages short-term speculation and reduces circular trading.<\/p>\n
\n5. Increased Margin Requirements<\/h2>\n
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\n6. Surveillance on Derivatives Segment<\/h2>\n
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\n7. Enhanced Disclosure Requirements<\/h2>\n
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\nCase Study 1: Small-Cap Volatility and GSM<\/h1>\n
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\nCase Study 2: F&O Ban Periods During High Speculation<\/h1>\n
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\nHow Surveillance Measures Protect Retail Investors<\/h1>\n