MC Impact: SEBI revises ESM framework, stocks allowed to trade on all days

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The market regulator SEBI along with NSE and BSE on July 18 revised the surveillance actions under the Enhanced Surveillance Measure (ESM) framework. Earlier, the stocks under ESM Stage-II were allowed to trade only once a week. Now, this has been revised to all trading days.

On July 17, Moneycontrol had reported how ESM Stage-II was affecting the reputation of several micro-small companies, rendering the scrips illiquid as well as penalising investors by not letting them exit freely.

Also Read: A small EV company takes on BSE: Furore over ESM framework gets louder

Last week, BSE-listed Mercury EV Tech had challenged the framework at the Securities Appellate Tribunal. The next hearing was scheduled for July 25.

What has changed?

ESM framework was introduced on June 4 for highly volatile "micro-small" companies. These are companies with a market cap of less than Rs 500 crore. According to SEBI, high-low price variation and close-to-close price variation are the parameters used to shortlist securities under this framework.

There are two stages to this framework.

In Stage-I of the framework, the trading of the securities is settled through a trade-for-trade mechanism with a price band of 5 percent, or 2 percent, in case the scrip is already in the 2 percent band. There has been no revision for Stage-I.

In Stage-II, the existing surveillance action permitted trading only once a week with periodic call auction. This has now been revised to trading on all days under periodic call auction with trade-for-trade settlement and 2 percent price band.

The trade-for-trade segment is where shares are bought and sold on a delivery basis. These stocks cannot be sold on the same day and are not qualified for intraday trading.

This revised framework would be made effective from July 24, 2023, as per the notification.