Mid-caps and small caps recover as BSE clarifies on margin rules

The mid-cap and small-cap indices gave up 3% and 5% respectively in just two days in the early part of the week. The reason was a new rule inserted by BSE to check excess speculation in a market. Special surveillance measures by stock exchanges are nothing new and happen from time to time. The difference was that this time around, the wordings of the BSE circular left a lot of things to imagination and interpretation.

In the original BSE circular, things were open to interpretation. Firstly, there was no mention of the stock groups to which additional surveillance measures would apply. Secondly, the circular did not specify any market cap criteria, which made it logically applicable to all stocks. Lastly, BSE had prescribed weekly and monthly price limits apart from longer-term criteria for price limits. These open areas had a negative impact on sentiments.

BSE clarifies on open areas

Subsequent to the uncertainty in the market, BSE clarified on the 3 issues as under.

•    Firstly, the exchange has clarified that the add-on surveillance measures of limiting price bands would only apply to stocks in the X, XT, Z, ZP, ZY and Y group shares and only for stocks listed on the BSE. 

•    Secondly, BSE clarified that the additional surveillance was only applicable for securities with stock price above Rs.20 and having market cap less than Rs.1,000 crore.

•    Lastly, BSE clarified that instead of the weekly, month and quarterly price limits originally proposed, the new criteria will only consider 6-monthly, yearly, 2-year and 3-year criteria for price bands beyond daily limits.
BSE underscored that these measures were purely intended to reduce risk of volatility in smaller stocks and not to curb volumes in any way.