NSE, BSE to launch surveillance mechanism for 'micro-small' companies from June 5

To curb volatility in small-cap counters, leading stock exchanges BSE and NSE have put in place an enhanced surveillance mechanism for companies that have a market cap of less than Rs 500 crore.

The Enhanced Surveillance Measure (ESM) will be effective from June 5.

Sebi and exchanges in a joint meeting have decided to introduce ESM framework for “micro-small” companies (on the main board with market cap less than Rs 500 crore), the National Stock Exchange (NSE) and BSE said in two separate circulars on Friday.

The parameters for shortlisting the securities under the ESM framework include high-low price variation and close-to-close price variation.

Under the framework, the exchanges said, “… the trading for these securities will be settled through a trade for trade mechanism with a price band of 5 per cent or 2 per cent (if the scrip is already in the 2 per cent band).” “For securities in Stage II, the trading will be settled through a trade for trade mechanism with a price band of 2 per cent. The trading for these securities will be permitted once a week with periodic call auctions.” Further, the securities of public sector enterprises, public sector banks and the securities on which derivative products are available will be excluded from the process of shortlisting under the ESM framework.

The security shall be part of the framework for a minimum period of three months. However, in case a security is under Stage II of the framework, it shall be retained under Stage 2 for a minimum period of one month.

After the completion of one month, in a weekly stage review if such a securitys close to close price variation is less than 8 per cent in a month, it can move to Stage I of the ESM framework, the bourses said.

Securities that complete three months in the framework shall be eligible for stage-wise exit if they no longer meet the entry criteria, they added.

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