Additional Surveillance Mechanism

Context:

Recently, The National Stock Exchange (NSE)  placed Adani Enterprises, Adani Ports, and Ambuja Cements under the additional surveillance mechanism (ASM), Reuters reported. This means trading in their shares will require a 100% margin, which is aimed at curbing speculation and shortselling.

Relevance:

GS III: Indian Economy

Dimensions of the Article:

1. Additional Surveillance Mechanism (ASM)
2. Reserve Bank of India (RBI) and Adani Group Companies

Additional Surveillance Mechanism (ASM)

• The ASM was introduced on March 26, 2018, to protect investors from market volatility and unusual changes in share price.
• It is a measure introduced by the Securities and Exchange Board of India (SEBI) and exchanges to address surveillance concerns in the market.

Purpose of ASM

• The ASM was introduced to complement the existing surveillance measures in place.
• The intention is to protect investors from unusual changes in share price and market volatility.

Shortlisting of Securities for ASM

• The shortlisting of securities for ASM is based on criteria decided jointly by SEBI and exchanges.
• The criteria include parameters such as price/volume variation, volatility, high/low variation, client concentration, PE, close-to-close price variation, market capitalization, volume variation, delivery percentage, and number of unique PANs.

Significance of ASM Shortlisting

• The shortlisting of securities under ASM signals to investors that the stocks have seen unusual activity.
• However, the shortlisting should not be construed as an adverse action against the concerned company/entity.

Note: SEBI has not announced any probe into the Adani shares crash as of yet.

Reserve Bank of India (RBI) and Adani Group Companies

• The RBI has sought details from banks about their exposure to Adani group companies.
• This was in response to the sustained fall in the shares of Adani group companies and the withdrawal of the follow-on public offer of INR 20,000 crore.

Action by Banks

• Credit Suisse has stopped accepting bonds of Adani Group companies as collateral for margin loans to its private banking clients.
• Citigroup’s wealth unit has also stopped extending margin loans to clients against securities of Adani group companies.

Possible Reason for RBI Intervention

• The RBI’s intervention might have been prompted by the actions of Credit Suisse and Citigroup.
• A banking source suggests that this might have prompted the regulator to step in.

-Source: Indian Express