All About Graded Surveillance Measure (GSM)

Explains what GSM means, the factors that influence it, and how surveillance measures are used to regulate trading activity in the stock market.

In equity markets, exchanges use surveillance measures to monitor unusual trading activity and price behaviour. These systems operate alongside SEBI’s regulatory framework to support orderly market functioning.

Graded Surveillance Measure (GSM) is one such mechanism applied when specific securities display patterns that require closer review. The system classifies stocks into different surveillance stages based on predefined parameters and applies corresponding trading controls.

Surveillance measures are part of how Indian stock exchanges and SEBI oversee trading activity to support orderly markets and data-driven oversight.

Under the framework of SEBI surveillance measures and stock market surveillance, these controls are used to track trading patterns and identify conditions that may indicate abnormal activity or risks linked to market manipulation prevention.

Core elements of surveillance measures include:

• Trade monitoring
  Exchanges continuously analyse price movements, volumes, and order patterns to detect unusual behaviour.
  

• Risk classification of securities
  Stocks are categorised based on predefined parameters such as volatility, price movement, liquidity, and compliance history.
  

• Application of exchange-level controls
  Based on this classification, specific trading conditions or restrictions may be applied to a security.
  

• Disclosure of surveillance status
  Exchanges publish surveillance lists and circulars so market participants can view which securities fall under which framework.
   

Types of surveillance measures currently used in India include:

• Additional Surveillance Measure (ASM)
  Used for securities that show sharp price or volume movements or other indicators flagged through exchange surveillance systems.
  

• Graded Surveillance Measure (GSM)
  A stage-based framework applied to securities that meet predefined risk and compliance thresholds, with trading conditions changing by stage.
  

• Enhanced Surveillance Measure (ESM)
  Applied to securities that exhibit specific trading or compliance patterns identified through enhanced monitoring processes.
   

Together, these surveillance mechanisms form a structured system through which exchanges and SEBI monitor trading activity, manage abnormal behaviour, and support fair and transparent market functioning.

GSM is one of the exchange-level surveillance measures used by NSE and BSE to track securities that display trading or financial characteristics requiring closer monitoring.

Under GSM:

• Securities are categorised into surveillance stages

• Trading conditions change as the stage changes

• Reviews are conducted periodically based on predefined criteria
   

GSM functions as a classification and control system within the broader market surveillance framework.

Key factors used in GSM measurement include: -

• Financial disclosures and compliance

• Trading behaviour and price movement

• Liquidity and market capitalisation

• Corporate governance and transparency

The GSM framework is applied by stock exchanges under SEBI’s surveillance architecture to manage securities that display abnormal trading or price patterns.

Stocks identified under GSM are placed into predefined stages based on parameters such as price behaviour, market capitalisation, liquidity, and financial disclosures. Each stage carries specific trading and settlement conditions, such as delivery-based settlement, price bands, or additional margins, depending on the level of surveillance assigned.

The Graded Surveillance Measure (GSM) is a regulatory framework used by Indian stock exchanges to apply calibrated trading controls on securities that show unusual market behaviour or meet predefined risk parameters. The following features define how GSM functions within the surveillance ecosystem:

• Exchange-driven mechanism
  GSM is implemented and administered by stock exchanges such as NSE and BSE under surveillance guidelines issued by SEBI. Securities are placed under GSM based on exchange-defined screening criteria rather than investor actions.
  

• Stage-based control system
  GSM operates through multiple stages, each introducing progressively stricter trading conditions. These stages determine how frequently a security can be traded, applicable price bands, and margin or deposit requirements.
  

• Periodic review and reclassification
  Stocks under GSM are reviewed at regular intervals by the exchanges. Based on updated market data and company disclosures, a stock may move to a different stage, remain in the same stage, or be removed from GSM.
  

• Focus on price behaviour and compliance signals
  GSM placement is influenced by factors such as abnormal price movements, low liquidity, weak financial disclosures, corporate governance concerns, and irregular trading patterns, as observed by exchange surveillance systems.
  

• Use of Additional Surveillance Deposit (ASD)
  At certain GSM stages, buyers are required to place an Additional Surveillance Deposit, which is collected by the exchange and refunded after a prescribed period if no irregularities are observed. This deposit is separate from normal margins.
  

• Delivery-based settlement in higher stages
  As GSM stages increase, trading is commonly restricted to delivery-based settlement, meaning intraday square-off is not permitted and shares must be taken into or delivered from the demat account.
  

• No implication on business quality or listing status
  GSM classification reflects market-behaviour-based surveillance and not a judgment on a company’s long-term business prospects, financial viability, or listing eligibility.

Stocks are placed under the Graded Surveillance Measure (GSM) framework based on a set of surveillance parameters used by Indian stock exchanges to flag securities that show heightened risk indicators. These parameters are reviewed periodically using market and company-level data.

The commonly observed factors that influence whether a stock is placed under GSM include:

• Price behaviour
  Unusual or sustained price movements that are not supported by corresponding financial disclosures or corporate announcements.
  

• Trading volume patterns
  Sharp changes in traded volumes, particularly when they diverge from historical averages or broader market trends.
  

• Market capitalisation and liquidity
  Stocks with relatively low market capitalisation or thin trading volumes are more susceptible to price distortion and therefore receive closer scrutiny.
  

• Corporate financial position
  Weak financial indicators such as declining revenues, losses, low net worth, or adverse audit remarks are taken into account.
  

• Compliance and disclosure history
  Delays, gaps, or inconsistencies in regulatory filings, financial statements, or exchange disclosures may increase surveillance intensity.
  

• Shareholding and governance indicators
  Patterns such as high promoter pledging, frequent changes in shareholding, or governance-related concerns may also be assessed.
   

Stock exchanges use a combination of these indicators rather than any single metric to determine whether a security should be placed under GSM and, if so, which stage of surveillance applies.

GSM restrictions are applied to introduce additional controls on stocks that display unusual trading patterns or heightened risk indicators identified by the exchanges.

• Trade-for-trade settlement: Transactions are settled only on a delivery basis, with no offsetting of buy and sell positions on the same day.
  

• Upfront margin requirement: Buyers are required to provide the full trade value in advance, and in certain stages an Additional Surveillance Deposit (ASD) is also collected as prescribed by the exchange.
  

• Limited trading windows: Depending on the GSM stage, trading may be permitted only on specific days, such as weekly or monthly sessions.
  

• Delivery-only execution: Orders are processed as delivery transactions, with intraday or speculative trades not enabled for GSM-listed securities.
   

Together, these measures are designed to reduce the scope for price manipulation while keeping a regulated route open for transactions based on actual delivery of shares, including trades in undervalued shares.

Information on whether a security is placed under the Graded Surveillance Measure is published by the stock exchanges and reflected through market data systems.

GSM classification and stage details are available through:

• Stock exchange surveillance notices issued by NSE and BSE

• Exchange-maintained GSM lists published on their respective portals

• Broker trading systems, which display GSM tags based on exchange feeds
   

These sources reflect the surveillance status and any applicable trading restrictions associated with a listed security.

GSM classification affects how a security is traded on the exchange.

When a stock is under surveillance:

• Settlement conditions may change

• Margin or deposit requirements may increase

• Trading frequency may be limited
   

These changes alter how orders are processed and settled for securities under GSM.

Both NSE and BSE regularly update their GSM and ASM lists:

• Update Frequency: Usually weekly, but sometimes more frequent depending on market conditions

• Communication Channels: Exchange circulars, notices, and surveillance dashboards

• Review Mechanism: Periodic review to include or remove stocks based on changing criteria
  
  

Exchange circulars and surveillance lists published by NSE and BSE provide updates on GSM and ASM classifications.

GSM is an exchange-level surveillance framework that applies trading and settlement controls to securities showing predefined risk indicators. It classifies stocks into stages based on price behaviour, liquidity, and financial parameters. The framework defines how securities under surveillance are traded and settled on the exchange.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.