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Disciplinary Action Committee

Webinar on Surveillance Framework May 26, 2020

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Sr. No. Topic

1 ASM Framework

2 Graded Surveillance Measure (GSM) framework

3 BSE Awareness efforts on Various frameworks

4 Surveillance Alerts for Brokers

5 Common mistakes/ oversights

6. Unsolicited Stock Tips

Index

Topic 1

ASM framework

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Additional Surveillance Measure (ASM) Framework

ASM jointly decided by SEBI and Exchanges was introduced in March 2018 and thereafter have undergone multiple changes. The current framework covers :

Framework Objective Stages Actions Minimum Retention period

Short Term ASM To curb short term price variation

Two Graded Actions such as incremental Higher Margins

5, 15, 30 days

Long Term ASM To curb long term price variation

Four Graded Actions such as incremental Higher Margins, lower price bands and Gross Settlement

60 days

High Promoter Encumbrance

To mitigate risk arising out of high Promoter Encumbrance

One Higher margins 30 days

IBC To curb volatility on account of Insolvency

Two Graded Actions such as Higher Margins and Trade to trade

30 days

All Margins are applicable on Buyer as well as Seller and.

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ASM Stage wise Action Broad Shortlisting Parameters

Short Term

5 days / 15 days Criteria -Stage I – Minimum 40 % Margin Stage II - Minimum 80 % Margin Clarification from Companies

30 day Criteria -Minimum 40 % Margin

• High Low & Close to Close Price Variation• Client Concentration• Market Capitalization• Price Earning Ratio • Average No. of PANs • Average daily Volume• Delivery %

LongTerm

• Stage I - 80 % Margin • Stage II - Reduction of Price

Band + 100 % Margin• Stage III - Further reduction of

Price Band + 100% Margin• Stage IV - Gross Settlement

with 100 % margin

Long term and Short Term ASM

For details :https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20181027-1https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20190719-33https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20190827-32https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20200214-60

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ASM Stage wise Action Broad Shortlisting Parameters

PromoterEncumbrance

• Minimum 35 % Margin • High Low Variation• Client Concentration• Market Capitalization• Promoter Encumbrance vis-à-vis

issued share capital of the company

IBC Stage I – 100 % Margin Stage II - Trade to Trade.

Companies referred to IBC Board based on filing with Exchange

Long term and Short Term ASM

For details : https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20200417-31

https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20180608-34

Topic 2

Graded Surveillance Measure (GSM) framework

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GSM Framework

Introduced Introduced in March 2017 as jointly decided by SEBI and Exchanges

Objective Measure for companies having price not commensurate with financial health and fundamentals

Broad Shortlisting Parameters

Net worth, Net Fixed Assets, Price Earning Ratio, Market Capitalization, Price to Book value Ratio

Stage “0" Under price monitoring as per GSM framework

Stage “I" Margin 100% + 5% or lower daily price band

Stage "II" TT+ 5 % or lower daily price band + ASD 50%

Stage "III" TT+ 5% or lower daily price band+ ASD 100% + Once a week trading

Stage "IV" TT+5 % or lower daily price band + ASD 100% + Once a week trading+ Freezing of upper price movement

GSM Stage Surveillance Action

GSM Applicability Review Quarterly with advance intimation of review cycle

Topic 3

BSE Awareness efforts on Various frameworks

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ASM & GSM Framework awareness by BSE

• BSE Website – Dedicated webpage about GSM & ASM framework

• FAQs on BSE website

• BSE BOLT - Information on GSM & ASM

• Scrip master & Regulatory File – GSM & ASM indicator with stage

• BSE BOLT - Indication in the Order Entry screen window

• Facility to restrict trading in GSM & ASM stocks at dealer level in BOLT

• BSE BOLT - Alert while placing Order about GSM & ASM stage

• BSE BOLT Scrip help - window for display of surveillance stage

• BSE Website – Company Stock Reach Page, indicator displayed withstage

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ASM & GSM Framework awareness – BSE Website - Details of framework

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ASM & GSM Framework awareness - BSE Website – Details of framework

ReturnNext

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ASM & GSM Framework awareness – Company Stock Reach page

ReturnNext

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ASM & GSM indicator with stage in Regulatory Indicator file

ASM & GSM Framework awareness – Indicator in Regulatory File

Return

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ASM & GSM Framework awareness - Indication in the Order Entry screen window

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Xxxxxxxx

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ASM & GSM Framework awareness – Alert message while placing Orders

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Restrict trading in ASM & GSM stocks at dealer level in BOLT

Scrip levelStage levelDealer level(Notice dated Nov 29, 2018)

Return

Topic 4

Surveillance Alerts for Brokers

Surveillance Alerts for Brokers

BackgroundTo facilitate effective surveillance mechanisms by members alerts are provided in e-Boss System for members

Types of Alerts

• Regulatory Alerts – Based on Regulatory mandate and requires closure as per prescribed process vide Exchange notice No. 20130307-21 dated March 7, 2013.

• Exchange alerts - BSE initiative to facilitate effective surveillance

by the members and are informatory in nature.

Details : https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20130220-23

Monthly reminder email for Status update in e-BOSS

Update status in Alert Workflow in e-BOSS

Processing of alerts as per prescribed process

Email intimation to Member on Alert generated

Generation of alerts in e-BOSS Mandatory Requirement

• Mandatory to have its Board approved policy for processing the alerts.

• Alerts to be processed within 45 days as per prescribed process.

Monitoring

• Members’ half yearly internal audit

• Exchange Inspection

Types of Alerts being provided to members through eboss

Sr. No.

Regulatory Alerts Exchange Alerts

1. Significant increase in client activity High LTP Variation

2. Sudden trading activity in dormant account Large Cancelled Orders

3. Clients/Group of Client(s), dealing in common scrips

Large Modified Orders

4. Client(s)/Group of Client(s) concentrated in a few illiquid scrips

Large Order Value

5. Client(s)/Group of Client(s) dealing in scrip in minimum lot size

Large Trade Qty

6. Client / Group of Client(s) Concentration in a scrip

Large Trade Values

7. Circular Trading Large Unexecuted Order Deviation to Market Price

8. Pump and Dump Lower Circuit Breakers

9. Wash Sales (Not Applicable post implementation of STPC )

Upper Circuit Breakers

10. Reversal of Trades Trading Close to Lower Circuits

11. Front Running Trading Close to Upper Circuits

12. Concentrated position in the Open Interest / High Turnover concentration

ALGO Order Trade Ratio

13. Order book spoofing i.e. large orders away from market

Option Premium Away from Theoretical Price

Details: https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20130307-21

https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20190205-54

Exchange Alerts

Types of Alerts

E-Boss Alert Work Flow Screen

Topic 4

Common mistakes/ oversights

Incorrect information updated in UCC database viz. current income, name change, client type, etc.

Sudden trading activity by client in a security

Client/ group of clients having significant trading activity in a particular security

Transaction value does not match with income declared in KYC / updated in UCC Database

Source of securities sold/ funds transferred by the client not verified

Declarations/ undertakings submitted by clients not verified

Based on Exchange intimation / Member’s own observation, trading is blocked only in a particular stock.

Status of Alerts downloaded in e-BOSS system remains open

Member internal alerts are referred to the Exchange;

• Without following prescribed procedure including client explanation

• No abnormality observed by Member

Common observations

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Common observations/oversights by members observed during course of Surveillance

Topic 5

Unsolicited Stock Tips

Dealing with Unsolicited Stock Tips

Background• SMSs sent by unregistered entities (impersonating reputed broking

houses)• Resulting into increased trading activities in such stocks

Member obligation

• Exercise Necessary Due Diligence while dealing in SMS stocks• Broad guidelines for analysis given in Notice no. 20171117-18• Enhance surveillance for newly registered clients• Verify source of funds/ securities• Withhold pay-out of clients in case any unusual trading pattern is

observed

BSE initiatives

• SEBI / TRAI / Exchange’s issued various notices / circulars.• Dedicated section on Exchange website - Attention Investors• List of stocks under Current list, Historical list and Information list• List published on Trading terminal• Dedicated Mobile No. 7506840578 for reporting of unsolicited

Stock tips • Monthly Cautionary generic messages sent to investors to take

informed decision while dealing in stocks and beware of unsolicited SMS tips/recommendations

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Question and Answers