Explained: What is the Add-On Price Band Framework introduced by BSE?

Indian stocks went into a tailspin earlier this week, weighed down by a selloff in the broader markets after the BSE said it would introduce curbs on the price movements of certain shares.

The S&P BSE MidCap Index fell over 2 percent and the S&P BSE SmallCap Index declined about 4 percent since their August 6 closing after the BSE introduced the measures, known as the Add-On Price Band Framework, on August 9.

The indices recouped some of the losses and closed little changed on August 11 after the BSE clarified that the price-curb measures would apply only to stocks listed on the exchange and those with a market capitalisation of less than Rs 1,000 crore. The duration of the restrictions would be for a minimum of 30 calendar days.

Under the measures introduced as part of the new surveillance framework, certain securities would be subjected to weekly, monthly and quarterly price limits in addition to their daily price bands.

Currently, shares of 4,748 companies are listed on the BSE, of which 849 have been suspended, leaving 3,899 available for trading. The framework applies to companies that are listed only on the BSE, which is about 2,400 companies.

Atish Matlawala, a senior analyst at SSJ Finance & Securities, explains what the new measures are and how they are beneficial.

What is the circular all about?

The new surveillance framework is meant to maintain market integrity and curb excessive price movement in securities listed exclusively on the BSE trading platform. A need has been felt to further strengthen the extant surveillance measures.

How will it impact investors?

It’s all about safeguarding investors’ interests in the market.

What led the BSE to introduce this mechanism?

The move, we believe, may stop the bloodbath in the broader markets.

How is it different from other surveillance measures?

The new framework is applicable to companies with a market capitalisation of less than Rs 1,000 crore and to securities in groups X, XT, Z, ZP, ZY and Y. Smaller companies are more vulnerable to manipulation.

What is the way ahead?

This will certainly help in protecting the interests of small investors..

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.