Mumbai: To align the periodic price band mechanism with the new graded surveillance measures (GSM) framework, the BSE has decided to do away with weekly and monthly price limits for securities listed on its platform.
The stock exchange will phase out the weekly price bands from March 20 and the monthly price bands from April 3 for companies that attract such periodic price limits.
To prevent excessive volatility in shares the stock exchange, in 2015, had introduced long duration price bands, in addition to daily price bands, for stocks exclusively listed and traded on its platform.
The weekly, monthly, quarterly and annual price bands were devised to contain volatility in the prices of stocks across long period to ensure improved price formation and better regulatory oversight.
However, in a recent notice, BSE noted that the genesis to introduce periodic price bands was to create a rationalised and structured framework to promote and implement an orderly price discovery of securities on its trading platform.
“With the recent formalisation and introduction of the GSM framework on February 23, 2017, a need has been felt to rationalise periodic price band framework implemented by the exchange to compliment GSM framework and to align the proactive measures taken by exchange, in a phased and orderly manner,” BSE added.
Accordingly, the exchange will phase out weekly and monthly price bands for companies, but will retain the quarterly and yearly periodic price limits.
“Also, all other provisions of periodic price band framework shall remain unchanged,” it added.
Nation’s stock exchanges have put in place GSM to check any abnormal rise in share price not commensurate with the company’s financial health and fundamentals like earnings, book value, fixed assets, net worth, P/E multiple.
Among the steps being proposed under GSM are placing such securities in trade to trade category, requiring the entities to deposit an additional amount as surveillance deposit which can be retained for an extended period, and freezing of price on the upper side of trading in shares.
Making such securities available for trading just once in a week or month is also been proposed. The mechanism has been implemented on back of recent
instances where shares of certain companies have seen a steep surge in prices despite no major trigger.