A BSE circular to maintain market integrity and curb excessive price movement in securities is likely the reason behind a sharp selloff in the mid- and small-cap stocks.
On August 9, the BSE issued a circular, introducing “a new surveillance framework viz. Add-on Price Band Framework” for securities listed exclusively on BSE Trading Platform. The stocks shortlisted, the circular said, will be subjected to additional periodic price limits viz. weekly, monthly and quarterly price limits. CHECK DETAILS HERE
Source: BSE circular
These add-on price bands shall be in addition to the applicable daily price bands of such securities, it said.
Further, the Add-on price band shall be expressed in terms of a ratio of close price of the security and depending upon the daily price band slab applicable for the security, there will be different ratios of add-on price bands.
Source: BSE circular
Once the security reaches the respective price limit of a period, trading shall be allowed only within the respective prescribed price range and the same shall not be revised till the beginning of next cycle i.e. next Week/Month/Quarter wherein new price limits shall be computed for the respective periods, the BSE circular said.Final upper daily price band shall be minimum of all individual upper price band limits and final lower daily price band shall be maximum of all individual lower price band limits, it added.
"The measures, I believe, will not have material impact. That said, in the current situation, the fall is happening more so because most players were overbought into these counters. Hence, they offloaded in the backdrop of the new regulation by the BSE. Mid-and small-caps always carry such risks as a number of these counters may/not be liquid enough to give investors an exit opportunity," said Deven Choksey, managing director at KR Choksey Investment Managers. READ THE FULL INTERVIEW HERE
The new rules shall be applicable from August 23, 2021 and the securities placed in the Add-on framework shall remain in the framework for a minimum period of 90 calendar days. Securities shall be eligible to move out if it does not qualify the provisions of the above framework thereafter. Review of the shortlisted securities under the framework i.e. inclusion/exclusion shall be carried out on monthly basis.
On Wednesday, the BSE SmallCap index tumbled 3.3 per cent while the BSE MidCap index dropped 2 per cent on the BSE. In the past five days, the SmallCap index has declined over 7 per cent and the MidCap index has slipped over 4 per cent as against a flat Sensex index.
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Heres why BSEs Add-on Price Band Framework hit mid-, small-cap stocks - Business Standard
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