What is ESM in Share Market
What is ESM in Share Market
Securities and Exchange Board of India (SEBI) and Exchanges: Safeguarding Investor Interests with Enhanced Surveillance Measures
In the dynamic world of finance, market integrity and the safeguarding of investor interests are of paramount importance. To achieve this goal, the Securities and Exchange Board of India (SEBI) and Exchanges have been proactively introducing various enhanced pre-emptive surveillance measures.
These measures include a reduction in price bands, periodic call auctions, and the transfer of securities to the Trade for Trade segment when needed.
In their unwavering commitment to maintain market integrity, SEBI and the Exchanges have taken a step further by implementing Enhanced Surveillance Measures (ESM) on Micro-Small Companies.
This article explores the significance of these measures, the objective parameters behind their implementation, and the impact they have on the market.
Enhanced Pre-Emptive Surveillance Measures
Price Bands: Maintaining Stability
Price bands act as protective limits on the price movement of a security within a trading session. SEBI and the Exchanges have strategically set these bands to prevent excessive volatility and price manipulation.
When the price of a security breaches the stipulated band, trading is halted temporarily, allowing investors to evaluate their positions and make informed decisions.
This measure ensures stability in the market and prevents wild price fluctuations that could adversely impact investors.
Periodic Call Auctions: Enhancing Transparency
Call auctions are brief trading sessions conducted at regular intervals during the trading day. In these auctions, buy and sell orders are matched at a single equilibrium price, fostering transparency and discovering fair market value.
By implementing periodic call auctions, SEBI and Exchanges enable better price discovery and provide an opportunity for investors to recalibrate their positions based on new information.
Transfer of Securities to Trade for Trade Segment: Curbing Speculation
The Trade for Trade segment, commonly known as the T2T segment, is a restricted trading environment. Securities transferred to this segment face stringent trading conditions, ensuring that transactions occur on a delivery basis only.
This measure is employed for securities that experience excessive volatility or are subject to regulatory concerns. By doing so, SEBI and the Exchanges reduce the potential for speculative trading activities that could compromise market stability.
Enhanced Surveillance Measures (ESM) on Micro-Small Companies
Objective Parameters: Price Variation and Standard Deviation
SEBI and Exchanges have identified Micro-Small Companies on the main board, with a market capitalization of less than INR 500 crores, as entities subject to Enhanced Surveillance Measures.
These measures are based on objective parameters, primarily focused on monitoring price variation and standard deviation.
Price variation refers to the change in a security’s price over a specific period, while standard deviation measures the extent to which a security’s price deviates from its average price.
By analyzing these parameters, SEBI and the Exchanges can promptly detect irregularities and potential market manipulation.
Informed Disclosure: Transparency for Market Participants
The list of securities identified under ESM is disclosed to the market participants from time to time and is made readily available on the Exchange’s website.
This transparency allows investors to stay informed about the securities subject to Enhanced Surveillance Measures.
By promptly disclosing this information, SEBI and the Exchanges instill confidence in the market participants, fostering a more secure and accountable investment environment.
Importance of Enhanced Surveillance Measures
ESM plays a pivotal role in maintaining market integrity and safeguarding the interests of investors. Let’s explore some of the key reasons why these measures are essential:
Early Detection of Manipulative Activities
By closely monitoring price variations and standard deviations, SEBI and Exchanges can promptly identify potential manipulative activities in the market.
This early detection enables timely intervention, preventing any adverse impact on investor sentiments and overall market stability.
Minimizing Systemic Risks
Systemic risks pose a threat to the overall financial system, and timely detection of such risks is crucial.
ESM aids in identifying risks associated with specific securities or sectors, allowing authorities to take necessary corrective measures promptly.
Enhancing Investor Confidence
Investor confidence is the bedrock of any financial market. The implementation of ESM signals the commitment of SEBI and Exchanges to ensure fair and transparent trading practices.
This, in turn, boosts investor confidence, attracting more participation and liquidity in the market.
Fostering a Level Playing Field
ESM ensures that all market participants operate on a level playing field, without undue advantage to any particular entity. This fosters a fair and competitive market environment, encouraging long-term sustainable investments.
Strengthening Regulatory Framework
The existence of robust surveillance measures strengthens the regulatory framework of the financial market. It acts as a deterrent against fraudulent practices, thereby promoting ethical conduct among market participants.
Frequently Asked Questions (FAQs)
Q: What are Enhanced Pre-Emptive Surveillance Measures?
A: Enhanced Pre-Emptive Surveillance Measures include a series of proactive steps taken by SEBI and Exchanges to ensure market stability and safeguard investor interests. These measures encompass various actions like setting price bands, conducting periodic call auctions, and transferring securities to the Trade for Trade segment when necessary.
Q: How do Price Bands work?
A: Price Bands are upper and lower limits set by SEBI and Exchanges to restrict the movement of a security’s price within a trading session. If the price breaches these bands, trading is halted temporarily to prevent excessive volatility and manipulation.
Q: What is the purpose of Periodic Call Auctions?
A: Periodic Call Auctions enhance transparency and promote fair price discovery. These auctions occur at regular intervals during the trading day, where buy and sell orders are matched at a single equilibrium price, ensuring transparent and efficient trading.
Q: Why are Micro-Small Companies subject to Enhanced Surveillance Measures?
A: Micro-Small Companies, with a market capitalization of less than INR 500 crores, are subject to ESM based on objective parameters like price variation and standard deviation. This helps detect potential irregularities and market manipulation.
Q: How does Enhanced Surveillance boost investor confidence?
A: Enhanced Surveillance Measures demonstrate SEBI and Exchanges’ commitment to maintaining a fair and transparent market. This fosters investor confidence as they are assured of a level playing field and regulatory protection.
Q: How does ESM benefit the overall financial system?
A: ESM plays a crucial role in minimizing systemic risks by promptly detecting and addressing potential threats. This ensures the stability and resilience of the overall financial system.
Conclusion
SEBI and Exchanges’ commitment to market integrity and investor protection is exemplified by their introduction of Enhanced Surveillance Measures.
These proactive steps, in conjunction with existing surveillance measures, create a robust framework for a secure and transparent financial market.
By monitoring price variation and standard deviation on Micro-Small Companies, SEBI and the Exchanges can promptly detect and deter manipulative activities, ultimately safeguarding the interests of investors and promoting sustainable growth.
As the financial landscape continues to evolve, these surveillance measures remain indispensable in ensuring a resilient and trustworthy investment environment.
