Given the number of messages floating in the market as well as queries we have been receiving, we at Prabhudas Lilladher did a brief concall with an exchange official to briefly capture the essence of ASM and how it differs from GSM or T2T in order to assuage customer concerns due to the sudden impact on even Group A shares.
- ASM has been basically brought in to control volatility while GSM exists to safeguard investors against stocks which may be moving out of line with fundamentals. Both are principally different in their intention.
T2T is an animal in the middle where the price movement versus the index is taken into account apart from market capitalization to arrive at a list of shortlisted securities.
- A stock being categorized in T2T means 1) upfront margin required and 2) customers cannot do intra- day and have to settle their purchases and sales independently. While in ASM there is no such issue with intraday though it also requires upfront margins of 100%.
- GSM scrips have a graded structure to prevent excesses including the imposition of additional surveillance deposits (ASD) which are refunded after a 5-6 month period at the extreme and are often 2 times of the value of the purchase and continue to remain blocked even after the open position is nullified. In addition, there are severe trade restrictions on these.
GSM Stage 0 , Trade to Trade and ASM almost resemble each other in intent but as mentioned above, the principles behind each are different – most important, T2T and GSM 0 are similar in that they dont allow Intraday Trading while ASM does.
However, there has been a negative fallout of this announcement and with brute force! While the midcap indices were weak right from January 2018, the announcement has served as the proverbial nail on the camel’s back. Since margin is charged at 100% on these scrips, brokers would typically now not encourage any fresh buying on these counters while NBFCs will refuse to fund new positions or allow old positions at the same terms – which in turn means the overleveraged accounts will may have come under margin calls . This fear of prospective dump sales may be one of the reasons why some of even the good quality stocks have been hammered.
If one remembers, the exchanges had also asked mutual funds to realign portfolios based on strict definitions of market capitalization. While the timing of ASM guidelines is peculiar as it followed immediately after the mutual fund deadline expired, it all seems to be part of a long term trend by SEBI on its stance on market health and safety.