ASM and GSM: How the SEBI Surveillance Framework Works
ASM (Additional Surveillance Measure) and GSM (Graded Surveillance Measure) are frameworks run by NSE and BSE together with SEBI that make it harder and costlier to trade stocks showing abnormal price behaviour. They work by raising margins, shrinking price bands, forcing delivery-based settlement, and in the most severe stages allowing trading only once a week or once a month.
Neither framework is an accusation. The exchanges state clearly in every circular that inclusion should not be read as a finding of wrongdoing by the company. The measures target trading activity, not the business, and a stock exits once the triggering conditions stop applying.
GSM: aimed at prices that fundamentals do not support
The Graded Surveillance Measure, in place since 2017, screens companies on financial health rather than on how fast the price moved. Shortlisting looks at things like net worth, net fixed assets, book value, whether earnings are negative, and market capitalisation. A tiny company with weak or negative earnings whose price keeps climbing is exactly the profile GSM is built for.
The framework is graded, meaning restrictions tighten in stages if the situation persists. The distinctive tool is the Additional Surveillance Deposit, an amount the buyer has to deposit with the exchange, held for a minimum period of about five months and returned without interest. That deposit is what makes higher GSM stages genuinely painful.
The shape of the GSM stages
| Stage | Typical restriction |
|---|---|
| Stage I | Trade-to-trade settlement with a 5% price band |
| Stage II | Trade to trade, 5% band, plus a surveillance deposit of 100% of trade value from the buyer |
| Stage III | Trading permitted only once a week, with a 100% deposit |
| Stage IV | Weekly trading with the deposit raised to 200% of trade value |
| Stage V | Trading permitted only once a month, with a 200% deposit |
| Stage VI | Monthly trading, 200% deposit, and no upward price movement allowed |
Treat that table as the structure, not as today’s rulebook. The stage details have been revised more than once since GSM began, so check the current NSE or BSE surveillance circular for the exact deposit percentages and session rules in force.
ASM: aimed at unusual price and volume behaviour
Where GSM starts with the balance sheet, ASM starts with the tape. Selection is driven by objective market data, and exchanges run two tracks: short-term ASM, which reacts to sharp recent moves, and long-term ASM, which captures stocks that have run up over many months.
Criteria that feed the screen include high-low price variation, close-to-close variation over set windows, the number of times the price band was hit, client concentration in the traded volume, and the price-to-earnings ratio. Consequences build up through stages:
- Stage I: applicable margin goes to 100% of trade value, so no funding and no intraday cushion.
- Stage II: 100% margin plus the price band tightened, commonly to 5%.
- Higher stages: settlement moved to trade to trade, and in some cases only periodic call auction sessions.
Stocks with derivatives contracts are handled differently, since price bands work differently there, and the framework applies margin measures to the underlying instead.
ESM: the framework for very small companies
A third layer, the Enhanced Surveillance Measure, was added for micro and small cap companies outside the derivatives segment. Stage I typically brings a 5% price band with 100% margin and trade-to-trade settlement. Stage II is stricter, moving the stock into a periodic call auction session with a 2% band, so continuous trading stops altogether.
Call auction means orders collect during a window and match at one price at the end of it, rather than trading continuously. Anyone used to placing a market order gets an unpleasant surprise here.
What this means for your trading account
- No margin trading facility and no funding, since 100% of trade value is required upfront.
- These stocks are usually removed from the approved collateral list, so pledging them yields no margin.
- Intraday trading disappears once the stock moves to trade to trade.
- Exit risk rises sharply. A 5% or 2% band with thin volume can leave the stock frozen at a circuit for several sessions.
- Any surveillance deposit is blocked for months and earns nothing, which is a real cost of carry.
The practical habit is simple. Before buying a small company that has doubled in a few weeks, check the exchange surveillance lists, which are published and updated regularly. If the name is already at GSM Stage III or on long-term ASM, you are buying into a market with the exits narrowed.
Frequently Asked Questions
Does ASM or GSM mean the company is a fraud?
No. The exchanges say explicitly that inclusion is not an adverse finding against the company. It is a preventive curb on trading activity that looks disconnected from fundamentals. Investigations, if any, are a separate SEBI process.
How do I find out if a stock is under surveillance?
NSE and BSE publish the current ASM, GSM and ESM lists along with review circulars on their websites, and most broker apps show a warning flag on the stock page. Check on the day you plan to trade, because lists are revised often.
Can I sell shares I already hold in a GSM stage IV stock?
Yes, but only in the permitted session, which may be one day a week or one day a month at higher stages. You need the shares in your demat account since settlement is delivery based. Plan exits around the trading calendar the exchange publishes.
Is the additional surveillance deposit refundable?
It is refunded after the minimum holding period set by the exchange, which has generally been around five months, and no interest is paid on it. Until then the money is blocked with the exchange, which is why higher stages deter buyers.
Do surveillance measures apply to Nifty 50 stocks?
Very rarely. Index constituents and stocks with active derivatives contracts are largely outside the shortlisting criteria, which are built for small, thinly traded companies. Margin-related measures can still apply to individual derivative underlyings.
Key Takeaways
- GSM screens weak fundamentals against rising prices, ASM screens abnormal price and volume behaviour.
- Restrictions escalate in stages, from 100% margin and a 5% band to weekly or monthly trading only.
- GSM adds an additional surveillance deposit, blocked for months and refunded without interest.
- ESM applies a 5% band and then a periodic call auction with a 2% band to very small companies.
- Inclusion is preventive, not a verdict, but it removes funding, pledging and easy exits.
