What is Graded Surveillance Measure

Graded Surveillance Measure helps investors identify securities that require additional caution. SEBI and recognised stock exchanges use the framework to monitor unusual price movements and reduce excessive speculation.

• GSM currently has four stages.
• Under Stage I, an applicable margin of 100% is imposed.
• A price band of 5% or lower applies across all GSM stages.
• Under Stage II, buyers must provide an Additional Surveillance Deposit equal to 50% of the trade value.
• Under Stages III and IV, trading is allowed once a week, with an Additional Surveillance Deposit of 100% of the trade value.
• Under Stage IV, no upward price movement is permitted.
• Inclusion under GSM is a surveillance warning and does not prove fraud or regulatory wrongdoing.
   

Stock exchanges identify securities for GSM using predefined objective criteria. A shortlisted security may be placed in Stage 0 before additional surveillance actions under Stages I to IV become applicable.
The restrictions become progressively stricter as a security moves to a higher stage. The current stage-wise actions are:

• Stage I: An applicable margin of 100% is imposed, along with a price band of 5% or lower.
• Stage II: The security is transferred to the Trade-for-Trade segment. A price band of 5% or lower applies, and buyers must deposit an ASD equal to 50% of the trade value.
• Stage III: Trading is permitted once a week, normally every Monday or on the first trading day of the week. Buyers must deposit an ASD equal to 100% of the trade value.
• Stage IV: Trading continues once a week, and buyers must provide an ASD equal to 100% of the trade value. No upward price movement is permitted.

The Additional Surveillance Deposit must be paid in cash by the buyer through the trading member. It is collected over and above the normal margins and is retained until further notice.
Under Trade-for-Trade settlement, every transaction must result in delivery. You generally cannot buy and sell the same security during the same trading session to settle only the price difference.
The GSM framework works alongside other surveillance measures introduced by SEBI and imposed by stock exchanges. Therefore, a security may be subject to GSM as well as other applicable restrictions.
 

GSM shortlisting focuses on whether the price of a security is supported by the issuing company’s financial position and business fundamentals.
Important factors may include:

• Net worth: The value left after the company’s liabilities are deducted from its assets.
• Net fixed assets: The value of the company’s tangible assets and capital work in progress.
• Earnings: Whether the company earns enough profit to support its market valuation.
• Price-to-earnings ratio: Whether the security’s market price is unusually high in relation to the company’s earnings.
• Price-to-book ratio: Whether the market price is disproportionate to the company’s book value.
• Market capitalisation: The total market value of the company’s outstanding shares.
• Price movement: Whether the security has recorded an unusual or sustained increase in price.

Different shortlisting conditions may apply to mainboard and small and medium enterprise securities. Certain securities, such as those with derivative products or those forming part of specified market indices, may be excluded under the applicable criteria.
The detailed criteria used to move a security between higher and lower stages are not publicly disclosed. This prevents market participants from finding ways to avoid the surveillance framework.
 

GSM warns investors when a security may carry greater valuation, liquidity or market risk. A sudden increase in price may attract buyers even when the company’s earnings or financial position do not support the rise.
The framework helps control excessive speculation by imposing stricter margins, limiting price movements and reducing trading frequency. These restrictions may discourage short-term speculative activity in shortlisted securities.
GSM also improves market transparency. Stock exchanges publish lists of securities covered under the framework and disclose the stage applicable to each security.
Investors can use this information to:

• Check whether trading restrictions apply.
• Review the company’s financial statements and exchange filings.
• Assess whether the market price is supported by its fundamentals.
• Consider possible liquidity issues before placing an order.
• Avoid making decisions based only on rumours or sudden price increases.

However, GSM inclusion should not be treated as a recommendation to buy, sell or hold a security. It is an alert asking investors to conduct additional due diligence.
 

What are the implications of GSM?

GSM can affect the amount required to purchase a security, the frequency with which it can be traded and how easily investors can exit their holdings.
The main implications are:

• Higher margin requirement: Stage I requires an applicable margin of 100%.
• Additional cash deposit: Buyers must provide an ASD from Stage II onwards.
• Compulsory delivery: Securities placed in the Trade-for-Trade segment cannot generally be used for intraday trading.
• Limited trading opportunities: Securities under Stages III and IV can be traded only once a week.
• Restricted price movement: No upward price movement is permitted at Stage IV.
• Lower liquidity: Fewer trading sessions and stricter conditions may make it difficult to buy or sell the security quickly.
• Greater capital requirement: The ASD is collected in addition to the trade value and normal margins.

GSM stages are surveillance categories, not ratings of a company’s quality or financial strength. A security in Stage I is not automatically stable or a blue-chip stock. Similarly, placement in a higher stage is not conclusive evidence of misconduct.
GSM inclusion also does not automatically prevent a company from declaring dividends, issuing bonus shares or undertaking a share buyback. Such actions are governed by separate laws, regulations and company-specific conditions.
 

Read more: Market capitalisation

A security does not necessarily remain under GSM permanently. Stock exchanges review shortlisted securities periodically using predefined criteria and the latest financial results filed by the companies.

• Quarterly review: Identification, inclusion and removal of securities under GSM are reviewed every quarter. Securities that no longer meet the inclusion criteria may be removed from the framework.
• Financial information used: Reviews generally consider the latest quarterly results for mainboard companies and half-yearly results for SME companies.
• Monthly stage review: Securities placed in Stage I or above may be reviewed monthly to determine whether the restrictions can be relaxed.
• Sequential movement: A security generally moves to a lower stage one level at a time. For example, an eligible security may move from Stage III to Stage II rather than directly leaving the framework.
• Exchange notification: Any movement into or out of a GSM stage is communicated through stock exchange circulars.

A move to a lower stage does not necessarily mean that every concern has been resolved. It means that the security has met the applicable criteria for reduced surveillance at that time.
Investors holding a GSM security should check its latest stage on the relevant stock exchange website. They should also understand the margin, deposit, delivery and trading-frequency restrictions before placing an order.
 

Graded Surveillance Measure is a regulatory framework that places securities under progressively stricter trading controls when their prices appear inconsistent with their financial fundamentals. Its four stages may impose 100% margins, Trade-for-Trade settlement, additional deposits, weekly trading and restrictions on upward price movement. GSM inclusion is not proof of wrongdoing, but it signals the need for greater caution. Investors should check the applicable stage, review company disclosures and understand the restrictions before trading.