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Learning Circle - Capital Market of India
BSE Mumbai Stock Exchange
Surveillance at BSE
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Surveillance at BSE The main objective of the Surveillance function of the Exchange is to promote market integrity in two ways, first, by monitoring price and volume movements (volatility) as well as by detecting potential market abuses at a nascent stage, with a view to minimizing the ability of the market participants, both in Cash and Derivative market, to influence the price of the scrip/ series in the absence of any meaningful information, and second, by managing default risk by taking necessary actions timely. All the instruments traded in the equity segment of Cash and Derivative market come under the Surveillance umbrella of BSE. Surveillance activities at the Exchange are divided broadly into two major segments, namely, price monitoring and position monitoring. Price monitoring is manly related to the price movement/ abnormal fluctuation in prices or volumes etc. whereas the position monitoring relates mainly to abnormal positions of members, etc. in order to manage default risk. Market Abuse
Market Abuse Market abuse is a broad term which includes abnormal price/ volume movement, artificial transactions, false or misleading impressions, insider trading, etc. In order to detect aberrant behaviour/ movement, it is necessary to know the normal market behaviour. The department uses various tools to determine normal and abnormal market behaviour. The necessary actions are initiated like imposition of special margin, reduction of circuit filters, trade to trade settlement, suspensions, de-activation of terminals, etc. to control abnormal market behaviour. The department carries out investigation, if necessary, based on the preliminary examination/ analysis and suitable actions are taken against members involved based on the investigation. The detailed explanation of the various Surveillance activities are as follows: Price Monitoring The functioning of the Price Monitoring is broadly divided into following activities: On-Line Surveillance Off-Line Surveillance Derivative Market Surveillance Investigations Surveillance Actions Rumour Verification Pro-active Measures On line Surveillance One of the most important tools of the Surveillance is the On-line Real Time Surveillance system which was commissioned on July 15, 1999 with main objectives of detecting potential market abuses at a nascent stage to reduce the ability of the market participants to unduly influence the price and volumes of the scrips traded at the Exchange, improve the risk management system and strengthen the self regulatory mechanism at the Exchange. The system has a facility to generate the alerts on-line, in real time, based on certain preset parameters like price and volume variations in scrips, members taking unduly large positions not commensurate with their financial position or having large concentrated position(s) in one or few scrips, etc. An alert is a measure of abnormal behaviour. An Alert occurs in the Surveillance system when a metric behaves significantly differently from its benchmark. The alerts generated by the system are analyzed and corrective action based on preliminary investigations is taken in such cases. The system also provides facility to access trades and orders of members. Off-Line Surveillance The Off-Line Surveillance system comprises of the various reports based on different parameters and scrutiny thereof.
The Surveillance actions or investigations are initiated in the scrips identified from the above-stated reports. Derivative Market Surveillance Areas of Focus
Investigations The department conducts in-depth investigations based on preliminary enquiries/ analysis made into trading of the scrip as also at the instance of SEBI. In case irregularities observed, necessary actions are initiated and/ or investigation case forwarded to SEBI, if necessary. Surveillance Actions Special Margins Special margins are imposed on scrips which have witnessed abnormal price/ volume movements. Special margin is imposed @ 25 % or 50 % as the case may be, on the client wise net outstanding purchase or sale position (or on both side) by the department. Reduction of Circuit Filters The circuit filters are reduced in case of illiquid scrips or as a price containment measure in low volume scrips. The circuit filters are reduced to 10 % or 5 % or 2 % as the case may be, based on the criteria decided by the department. The detailed explanation of the Price Band and Circuit Breaker system are as follows: Scrip wise Price Bands The following table shows the circuit filter limit applicable to different category of the scrips, w.e.f, June 03, 2002.
Circuit Breakers In addition to the above-stated price bands on individual scrips, SEBI has decided to implement index based market wide circuit breakers system, w.e.f., July 02, 2001.The circuit breakers are applicable at three stages of the index movement either way at 10 %, 15 % and 20 %. These circuit breakers will bring about a coordinated trading halt in both Equity and Derivative market. The market wide circuit breakers can be triggered by movement of either BSE SENSEX or the NSE NIFTY, whichever is breached earlier. The percentage movement are calculated on the closing index value of the quarter. These percentages are translated into absolute points of index variation (rounded off to the nearest 25 points in case of SENSEX). At the end of each quarter, these absolute points of index variations are revised and made applicable for the next quarter. The absolute points of SENSEX variation triggering market wide circuit breaker for a specified time period for any day of the quarter is informed by the Exchange through Press Release from time to time. |