Surveillance
BSE is one of the few stock exchanges in the world, which has obtained the ISO certification for its surveillance function. The main objective of the surveillance function is to promote market integrity in two ways,
By monitoring price and volume movements (volatility) as well as by detecting potential market abuses (fictitious/ artificial transactions, circular trading, false or misleading impressions, insider trading, etc) at a nascent stage, with a view to minimizing the ability of the market participants to influence the price of any scrip in the absence of any meaningful information
By taking timely actions to manage default risk.
The surveillance activities at BSE are allocated to three Cells:
Price Monitoring: is mainly related to the price movement/ abnormal fluctuation in prices or volumes of any scrip
Investigations: conducting snap investigations/examinations/detailed investigations in scrips where manipulation /aberration is suspected.
Position Monitoring: relates mainly to abnormal positions of Members in order to manage the default risk
Price Monitoring Cell
The function of this Cell is to detect potential market abuses at a nascent stage to reduce the ability of the market participants to unduly influence the price of the scrips traded at BSE by taking surveillance actions like reduction of circuit filters, imposition of special margin, transferring scrips on a trade-to-trade settlement basis, suspension of scrips/ members, etc.
These pro-active measures are taken based on the analysis/ processing of alerts generated based on various parameters and other inputs like news, company results, etc. The broad parameters considered for generation and analysis of alerts are price movement, top 'n' turnover, scrips traded infrequently, scrips hitting new high/ low, scrips picked up for rumour verification, etc.
The scrips picked up based on the preliminary analysis/ enquiries are forwarded to the Investigation cell for further examination/ investigation.
The detail rationale of the surveillance actions taken by BSE from time to time are as follows :
TOP
Special Margins
Special margins are imposed on such scrips which have witnessed an abnormal price/ volume movement. Special margin is imposed by BSE @ 25% or 50% or 75% as the case may be, on the client wise net outstanding purchase or sale position (or on both side).
Reduction of Circuit Filters
The circuit filters are reduced in case of illiquid scrips or as a price containment measures. The circuit filters are reduced to 10 % or 5 % or 2 % as the case may be, based on the criteria decided by the Surveillance Department. No circuit filters are applicable on scrips on which derivative products are available and scrips which are liquid and included in indices on which derivative products are available. However, BSE imposes dummy circuit filter on these scrips to avoid punching errors, if any.
Circuit Filter of 20 % is applicable on other scrips which are not included in the above-mentioned category.
Trade-to-Trade
If a scrip is shifted to the Trade-to-Trade settlement basis, selling/ buying of shares in that scrip results into giving/ taking delivery of shares at the gross level and no intra day netting off/ square off facility is permitted. The scrips which form part of the 'Z group' are compulsorily settled on a trade-to-trade basis. In addition, the Surveillance Department transfers various scrips from time to time to the trade-to-trade settlement basis (T&TS group) based on the criteria decided jointly by the stock exchanges and SEBI.
Suspension of a scrip
A scrip is suspended for trading by the Surveillance Department in exceptional cases, pending investigation or if the same scrip has been suspended by any other stock exchange as a surveillance action.
TOP
Rumour Verification
The Surveillance Department liaises with the Compliance Officers of the listed companies to obtain their comments on various price-sensitive corporate news items appearing in the media. Comments received from the companies are disseminated to the market by way of BOLT Ticker and/ or Notices on the BSE website. If the company denies the news / information, a letter is sent to the company asking them to take up the matter with the concerned media.
Investigations Cell
The Investigation Cell conducts following types of analysis of suspected market irregularities in a systematic and logical manner and then take appropriate and timely actions.
Snap Investigations
Potential cases of market irregularities are taken up for further analysis. A preliminary analysis of the trading pattern and corporate developments in the scrip is done to ascertain whether the price or volume variation observed requires further detailed analysis.
Examinations
Examinations are a more detailed form of preliminary analysis of the trading pattern and various developments in the company wherein a report is prepared. These examinations are conducted usually on receiving a reference from SEBI or any other department of BSE or is based on an investor complaint.
Investigations
These are full-fledged and detailed investigations wherein a complete analysis is conducted in a systematic and logical manner based on the information available with BSE and information sought/received from the Members, companies, depositories and various other sources. These investigations are conducted to establish the manipulation that was suspected in the preliminary analysis.
TOP
The Surveillance Department imposes a penalty or deactivates the BOLT terminals or suspends the Members who are involved in market manipulation, based on the input/ evidence available from the investigation report or as and when directed by SEBI. The cases of habitual offenders are taken to the Disciplinary Action Committee, which takes necessary disciplinary actions against such Members.
Position Monitoring
The Surveillance Department closely monitors the outstanding exposure of Members on a daily basis. For this purpose, it has developed various market monitoring reports. The reports are scrutinized to ascertain whether there is excessive purchase or sale position build up compared to the normal business of the Member, whether there are concentrated purchases or sales, or whether the purchases have been made by inactive or financially weak Members. Even the quality of scrips is considered to assess the quality of exposure. Based on an analysis of the above factors and the margins already paid and the capital deposited by the Member, early pay-in calls are made, if required. Some Members are even advised to reduce their outstanding exposure in the market. Trading restrictions are placed on financially weak Members as and when deemed fit after taking into consideration their past track record. The Department, as such, executes an important risk management function to avert possible payment default of Members by taking timely and corrective measures.
Market Wide Circuit Breakers
The earlier Circuit Filters at individual scrip level used to restrict the movements of indices as well. Now, there are no Circuit Filters on the scrips forming part of popular indices like SENSEX. In order to contain huge price movements of index scrips, SEBI has mandated that Market Wide Circuit Breakers (MWCB) which at 10-15-20% of the movements in either BSE SENSEX or NSE Nifty whichever is breached earlier would be applicable. This would provide a cooling period to the market participants and to assimilate and re-act to the market movements.
The trading halt on all stock exchanges would take place as under;
- In case of a 10% movement in either index, there will be a 1-hour market halt if the movement takes place before 1:00 p.m. In case the movement takes place at or after 1 p.m. but before 2:30 p.m., there will be a trading halt for 1/2 hour. In case the movement takes place at or after 2:30 p.m., there will be no trading halt at the 10% level and the market will continue trading.
- In case of a 15% movement in either index, there will be a 2-hour market halt if the movement takes place before 1:00 p.m. If the 15% trigger is reached on or after 1:00 p.m. but before 2 p.m., there will be a trading halt for 1 hour. If the 15% trigger is reached on or after 2:00 p.m., the trading will halt for the remainder of the day.
- In case of a 20% movement in either index, the trading will halt for the remainder of the day.
The above percentage would be translated into absolute points of the Index variation on a quarterly basis. These absolute points are revised at the end of each quarter
The Market Wide Circuit Breakers at a national level have been introduced in the Indian markets for the first time. This is on the lines of the system prevailing in the US markets.
Individual Scrip Circuit Filters
Circuit Filter of 20% is applicable on all scrips except the scrips on which derivative products are available and are part of indices on which derivative products are available. However, BSE imposes dummy circuit filter on these scrips to avoid punching errors, if any.
BSE is one of the few stock exchanges in the world, which has obtained the ISO certification for its surveillance function. The main objective of the surveillance function is to promote market integrity in two ways,
By monitoring price and volume movements (volatility) as well as by detecting potential market abuses (fictitious/ artificial transactions, circular trading, false or misleading impressions, insider trading, etc) at a nascent stage, with a view to minimizing the ability of the market participants to influence the price of any scrip in the absence of any meaningful information
By taking timely actions to manage default risk.
The surveillance activities at BSE are allocated to three Cells:
Price Monitoring: is mainly related to the price movement/ abnormal fluctuation in prices or volumes of any scrip
Investigations: conducting snap investigations/examinations/detailed investigations in scrips where manipulation /aberration is suspected.
Position Monitoring: relates mainly to abnormal positions of Members in order to manage the default risk
Price Monitoring Cell
The function of this Cell is to detect potential market abuses at a nascent stage to reduce the ability of the market participants to unduly influence the price of the scrips traded at BSE by taking surveillance actions like reduction of circuit filters, imposition of special margin, transferring scrips on a trade-to-trade settlement basis, suspension of scrips/ members, etc.
These pro-active measures are taken based on the analysis/ processing of alerts generated based on various parameters and other inputs like news, company results, etc. The broad parameters considered for generation and analysis of alerts are price movement, top 'n' turnover, scrips traded infrequently, scrips hitting new high/ low, scrips picked up for rumour verification, etc.
The scrips picked up based on the preliminary analysis/ enquiries are forwarded to the Investigation cell for further examination/ investigation.
The detail rationale of the surveillance actions taken by BSE from time to time are as follows :
TOP
Special Margins
Special margins are imposed on such scrips which have witnessed an abnormal price/ volume movement. Special margin is imposed by BSE @ 25% or 50% or 75% as the case may be, on the client wise net outstanding purchase or sale position (or on both side).
Reduction of Circuit Filters
The circuit filters are reduced in case of illiquid scrips or as a price containment measures. The circuit filters are reduced to 10 % or 5 % or 2 % as the case may be, based on the criteria decided by the Surveillance Department. No circuit filters are applicable on scrips on which derivative products are available and scrips which are liquid and included in indices on which derivative products are available. However, BSE imposes dummy circuit filter on these scrips to avoid punching errors, if any.
Circuit Filter of 20 % is applicable on other scrips which are not included in the above-mentioned category.
Trade-to-Trade
If a scrip is shifted to the Trade-to-Trade settlement basis, selling/ buying of shares in that scrip results into giving/ taking delivery of shares at the gross level and no intra day netting off/ square off facility is permitted. The scrips which form part of the 'Z group' are compulsorily settled on a trade-to-trade basis. In addition, the Surveillance Department transfers various scrips from time to time to the trade-to-trade settlement basis (T&TS group) based on the criteria decided jointly by the stock exchanges and SEBI.
Suspension of a scrip
A scrip is suspended for trading by the Surveillance Department in exceptional cases, pending investigation or if the same scrip has been suspended by any other stock exchange as a surveillance action.
TOP
Rumour Verification
The Surveillance Department liaises with the Compliance Officers of the listed companies to obtain their comments on various price-sensitive corporate news items appearing in the media. Comments received from the companies are disseminated to the market by way of BOLT Ticker and/ or Notices on the BSE website. If the company denies the news / information, a letter is sent to the company asking them to take up the matter with the concerned media.
Investigations Cell
The Investigation Cell conducts following types of analysis of suspected market irregularities in a systematic and logical manner and then take appropriate and timely actions.
Snap Investigations
Potential cases of market irregularities are taken up for further analysis. A preliminary analysis of the trading pattern and corporate developments in the scrip is done to ascertain whether the price or volume variation observed requires further detailed analysis.
Examinations
Examinations are a more detailed form of preliminary analysis of the trading pattern and various developments in the company wherein a report is prepared. These examinations are conducted usually on receiving a reference from SEBI or any other department of BSE or is based on an investor complaint.
Investigations
These are full-fledged and detailed investigations wherein a complete analysis is conducted in a systematic and logical manner based on the information available with BSE and information sought/received from the Members, companies, depositories and various other sources. These investigations are conducted to establish the manipulation that was suspected in the preliminary analysis.
TOP
The Surveillance Department imposes a penalty or deactivates the BOLT terminals or suspends the Members who are involved in market manipulation, based on the input/ evidence available from the investigation report or as and when directed by SEBI. The cases of habitual offenders are taken to the Disciplinary Action Committee, which takes necessary disciplinary actions against such Members.
Position Monitoring
The Surveillance Department closely monitors the outstanding exposure of Members on a daily basis. For this purpose, it has developed various market monitoring reports. The reports are scrutinized to ascertain whether there is excessive purchase or sale position build up compared to the normal business of the Member, whether there are concentrated purchases or sales, or whether the purchases have been made by inactive or financially weak Members. Even the quality of scrips is considered to assess the quality of exposure. Based on an analysis of the above factors and the margins already paid and the capital deposited by the Member, early pay-in calls are made, if required. Some Members are even advised to reduce their outstanding exposure in the market. Trading restrictions are placed on financially weak Members as and when deemed fit after taking into consideration their past track record. The Department, as such, executes an important risk management function to avert possible payment default of Members by taking timely and corrective measures.
Market Wide Circuit Breakers
The earlier Circuit Filters at individual scrip level used to restrict the movements of indices as well. Now, there are no Circuit Filters on the scrips forming part of popular indices like SENSEX. In order to contain huge price movements of index scrips, SEBI has mandated that Market Wide Circuit Breakers (MWCB) which at 10-15-20% of the movements in either BSE SENSEX or NSE Nifty whichever is breached earlier would be applicable. This would provide a cooling period to the market participants and to assimilate and re-act to the market movements.
The trading halt on all stock exchanges would take place as under;
- In case of a 10% movement in either index, there will be a 1-hour market halt if the movement takes place before 1:00 p.m. In case the movement takes place at or after 1 p.m. but before 2:30 p.m., there will be a trading halt for 1/2 hour. In case the movement takes place at or after 2:30 p.m., there will be no trading halt at the 10% level and the market will continue trading.
- In case of a 15% movement in either index, there will be a 2-hour market halt if the movement takes place before 1:00 p.m. If the 15% trigger is reached on or after 1:00 p.m. but before 2 p.m., there will be a trading halt for 1 hour. If the 15% trigger is reached on or after 2:00 p.m., the trading will halt for the remainder of the day.
- In case of a 20% movement in either index, the trading will halt for the remainder of the day.
The above percentage would be translated into absolute points of the Index variation on a quarterly basis. These absolute points are revised at the end of each quarter
The Market Wide Circuit Breakers at a national level have been introduced in the Indian markets for the first time. This is on the lines of the system prevailing in the US markets.
Individual Scrip Circuit Filters
Circuit Filter of 20% is applicable on all scrips except the scrips on which derivative products are available and are part of indices on which derivative products are available. However, BSE imposes dummy circuit filter on these scrips to avoid punching errors, if any.
