Enhanced surveillance measure unfair to a micro, small-cap companies: Anand Mohan, Mentor at Equity Bulls

For stage one or ESM-I, price variations over three to six months will be considered

The enhanced surveillance measure (ESM) for micro and small-cap companies, put in place by the market regulator and exchanges from June 5, is unfairly targeting one segment of the stocks, according to a mentor at Equity Bulls.

Anand Mohan, who is also the founder of Panguvanigam, questioned why the companies aren’t taking legal recourse.

He tweeted, “Pathetic to see micro / small cap stocks being suspended and allowed to trade only once in a week due to various surveillance mechanisms. Why the companies are not going to court, as they are paying listing fees for the full year?”

The new measure will cover companies on the main board with market cap less than Rs 500 crore and will be effected in two stages. For both stages, the companies will be shortlisted based on variations in high and low prices, or in close-to-close prices.

For stage one or ESM-I, price variations over three to six months will be considered. In stage two or ESM-II, companies already in stage one and significant price variations over five consecutive trading days or over one month will be included.

Mohan wrote, “The surveillance mechanism should allow for trading of stocks and what if somebody wants to sell due to various reasons. It is not fair to target only one segment of stocks. Why allow the listing of small companies then?”

“Aren't the exchanges answerable to companies? Nobody wants to even talk about this... Can every other company be valued at Rs. 500 crores?”

He asked why the regulators couldn’t penalise only the errant players. According to Mohan, this action even penalises investors.

“Already 377 stocks are included in ESM... Soon, half of the stocks will be in ESM and less work for stock exchange folks, as most of the companies won't trade,” he wrote.

On June 16, he posted that 16 more shares have been added to the surveillance measure and that that brings the total number of stocks under the surveillance framework to 393 stocks. “10 new stocks moved to ESM 2nd stage, so investors can't trade them daily,” he added.

In a more recent tweet, he pointed to implementational issues with this measure.

He posted about a software and consulting company that had been included in the ESM-I when it was a company with less than Rs 500-crore market cap.

“But, now the company's market cap is more than 650 crores. On Friday, this company has been moved to trade in ESM 2nd stage,” he posted, expressing puzzlement.

The company was to be moved to ESM-2 from June 19, according to the exchange notice.