A notice from Mumbai-based BSE brought down shares in the midcap and smallcap range as a result of panic selling. While the BSE issued clarifications to quell the panic, these stocks continued to be volatile. The Smallcap index closed with a fall of 2.05 percent on Tuesday, while the Midcap index saw a fall of 0.85 percent. So, what caused the decline?
Why are market watchers blaming the BSE circular?
BSE released on 9th August circular That it will bring in a new monitoring mechanism called ‘Add-on Price Band Framework’ for “Securities exclusively listed on BSE Trading Platform” to prevent excessive volatility in certain stocks.
BSE said stocks attracting new price restrictions are those which have seen their value rise at least six times in six months, or 12 times in one year, 20 times in two years or 30 times in three years. . Describing the mechanism, BSE said that for a stock having a reference price of Rs 10, the movement to attract the add-on price band would be as follows: 6 months: Rs 60 (600 per cent); 1 year: Rs 120 (1,200 per cent); 2 years: Rs 200 (2,000 per cent); 3 years: Rs 300 (3,000 per cent).
It said that as per the new rules that will come into force from August 23, “shortlisted securities will be subject to additional periodic value limits. Weekly, Monthly and Quarterly price limits”, which shall be “in addition to the applicable daily price bands of such securities”.
Price bands are a feature of the Indian stock markets and they determine the range within which the value of a stock can fluctuate. According to upstox.com, “NSE and BSE have fixed price bands for all securities. Price bands act as limits for trading of stocks; the exchange will not accept orders set outside the minimum and maximum price limits.”
It added, “The objective behind the price band and circuit breaker is to control large scale buying or selling of shares and perhaps most importantly, to curb panic selling.” However, the introduction of additional price bands had the effect of panic selling in the BSE circular. As the holders sought to book profit, which is nothing more than to liquidate the stock to capitalize the profits.
What has BSE said?
witness at large sell it BSE clarified in smallcap and midcap stocks 11 august That the new price band will be applicable only to those shares whose price is Rs 10 or more and whose market capitalization is less than Rs 1,000 crore. Further, it said that “the framework is applicable for BSE Exclusive Securities in groups. X, XT, Z, ZP, ZY, Y”.
BSE said the clarifications are being provided to simplify “understanding and implementation” of the framework and are in “partial modification and supersession” of the August 9 circular.
Further, while the BSE had said in an earlier circular that stocks placed in the add-on price band framework would remain in the framework for a “minimum 90 calendar days”, it said on August 11 that the review period would last for 30 more days in the framework. Stock held under “Will be eligible for exit if not eligible” [under] Thereafter the provisions of the above framework”. BSE said that the shortlisted securities will be reviewed on a monthly basis.
On August 11, it came out with a preliminary list of 31 companies that have been identified based on the framework criteria.
Why was the add-on price band introduced?
The stock exchange had said that it was introducing the add-on price band as part of “an effort to maintain market integrity and prevent excessive price movement”.
The smallcap index had hit an all-time high of 27,323.18 on August 4 this year. At the same time, the Midcap index also reached a record peak of 23,478.8 points. News agency PTI said that this year the smallcap index has gained 7,967.84 points or 44 per cent, while the midcap index has gained 4,820.62 points or 26.86 per cent.
Experts said the idea behind imposing additional restrictions on trading is that stocks of small and midcap companies are vulnerable to price manipulation by traders to attract individual retail investors, who will eventually lose money after going for the stock. can. Its price jumped.
BSE said it is “under shortlisting of securities” [the] The framework is purely on account of market surveillance and should not be construed as an adverse action against the company concerned.”
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