The ESB clarifies the framework of the complementary price brackets; check the new rules here
In a bid to allay investor concerns that triggered a sharp drop in mid- and small-cap stocks, the BSE on Wednesday clarified its new “additional price brackets framework” and said the new framework would apply to companies with a market capitalization of less than Rs 1,000 crore and in securities of groups – X, XT, Z, ZP, ZY and Y. Analysts say move could stop the bloodshed in broader markets .
“As a partial modification and as a replacement for the stock market circular of August 9, 2021, the new clarifications could stop the bloodshed on Street,” said an analyst from a national brokerage firm.
Yash Gupta, equity research associate at Angel Broking, suggests retail investors shouldn’t average their buy position at this point because markets can remain volatile.
On August 9, the ESB issued a circular introducing “a new supervisory framework, viz. Add-on Price Band Framework ”for securities listed exclusively on the ESB trading platform. According to her, these stocks will be subject to additional periodic price limits, viz. weekly, monthly and quarterly price limits. CHECK THE DETAILS HERE
Source: ESB circular
These additional price ranges will be in addition to the applicable daily price ranges of these titles, the ESB said.
In addition, the additional price range will be expressed in terms of the closing price ratio of the security and depending on the daily price range band applicable to the security, there will be different additional price band ratios.
Source: BSE circular (Note: X is the price of the security)
Once the security reaches the respective price limit of a period, trading will only be permitted within the respective prescribed price range and this will not be revised until the start of the next cycle, i.e. say the next week / month / quarter in which new price limits will be calculated. for the respective periods, according to the ESB circular.
The final upper daily price range will be the minimum of all individual upper price range limits and the final lower daily price range will be the maximum of all individual lower price range limits, he added.
“The measures, I believe, will not have a material impact. Having said that, in the current situation, the decline is happening more because most of the players have been overbought in these wickets. As a result, they have unloaded in the context of the new BSE regulation Mid and small caps still carry such risks, as a number of these meters may / may not be sufficiently liquid to provide investors with an exit opportunity, ”said Deven Choksey, Managing Director of KR Choksey Investment Managers. READ THE FULL INTERVIEW HERE
Dr VK Vijayakumar, chief investment strategist at Geojit Financial Services agrees and says there is foam in the mid and small cap space. “Many stocks in this segment have low liquidity and are therefore susceptible to manipulation by a group of traders. In the current state of market exuberance, manipulation is easy and appears to be happening. BSE is appropriate from a market integrity perspective, ”he adds.
In view of panic sales, the BSE has now reduced the minimum period that a security can be placed under the framework from 90 days to 30 calendar days.
“A security placed in the additional price brackets will remain in the framework for a minimum period of 30 calendar days and will be eligible for exit if it does not meet the provisions of the above framework thereafter. Review of titles shortlisted under the framework, ie inclusion / exclusion, should be done on a monthly basis, ”the ESB said in a new circular dated Aug. 11. READ HERE
The new rules will be applicable from August 23, 2021 and will be in addition to any other supervisory measures in force imposed by the exchanges from time to time.
On Wednesday, the BSE SmallCap index fell 3.3% while the BSE MidCap index fell 2% on BSE in intraday trading against a 0.4% drop in the BSE Sensex index .
Over the past six trading days, the Nifty MidCap Index corrected 5.4% from a high of 28,403 to 26,868, while the Nifty SmallCap index corrected 9% from highs from 10,670 to 9,794. Individually, some mid and small cap stocks have fallen more than 15-20% in the past 3-4 days.
This comes after a clear outperformance so far in CY21. The Sensex, for example, rose 10% in January-July 2021, compared to a 29% rise in BSE Midcap and a 48% jump in BSE Smallcap.