National Stock Exchange (NSE) – Surveillance actions follow non-discretionary, transparent rules for all stocks: National Stock Exchange

Amid criticism from the opposition over its decision to exclude three shares of the Adani group from short-term surveillance, NSE on Sunday defended its action, saying such steps are based on non-discretionary, pre-announced and automatically applicable rules and no involve human intervention.

After the National Stock Exchange (NSE) and BSE announced last week that three Adani group companies – Adani Enterprises, Adani Power and Adani Wilmar – will be exiting the short-term supplemental regulatory measure (ASM), Congress had asked why the stock market regulator, the Securities and Exchange Board of India (Sebi), stands by and allows investors to take on additional exposure to such stocks.

Congress general secretary, communications, Jairam Ramesh also said that even as global index providers, such as MSCI, S&P, Dow Jones and FTSE Russell, were assessing the position of Adani stocks in their stock indices, the NSE went the other way and five Adani Group companies in as many as 14 indices, as of March 20.

NSE and BSE have also decided to move two Adani Group stocks – Adani Green Energy and NDTV – to the first phase of the Long-Term Additional Surveillance Measures (ASM) Framework from Monday.

In a detailed statement on Sunday, the NSE said its stock oversight actions are under non-discretionary, pre-announced, automatically applicable and transparent regulations that apply to all eligible stocks.

Besides, the periodic inclusion and exclusion of stocks in the index was also according to non-discretionary, pre-announced, automatic and transparent policies, the exchange added.

“The inclusion or exclusion of shares under additional supervisory measures (ASM) and other trading activity-based specific rules such as price ranges, trade for trade (T2T), etc., are based on parameters that take into account price volatility, volumes, market capitalization, client concentration, liquidity parameters etc. The exact parameters along with duration of applicability have been in the public domain and have been applied consistently,” the NSE said.

These rules, which are common among exchanges, are implemented automatically and no human discretion is allowed, the NSE said, adding that these rules and review periods have also been announced to the market in advance.

The actions resulting from these pre-announced rules are available in the public domain and are applied without discretion to all stocks, which attract the specific clauses of such rules.

On Friday, shares of seven Adani Group companies of the ten listed entities closed higher.

After a beating on the stock markets following the report from US-based shortseller Hindenburg Research, many of the group’s stocks have gained some final ground.

The report had leveled a litany of allegations, including fraudulent transactions and share price manipulation, against the group, but Adanis has dismissed the allegations as lies and says they comply with all laws and disclosure requirements.

NSE said the entire framework is time-tested and any changes to the rules will also be announced in advance before any future actions based on new rules become applicable.

“Process audits and periodic inspections are carried out to ensure compliance with the defined parameters. The actions are applied in an automated manner and no exceptions are allowed,” he added.

The exchange further said that the inclusion and exclusion of shares in various Nifty indices on a periodic basis has been conducted according to transparent policies.

The index criteria for including stocks in an index or excluding existing stocks from an index are well-defined, documented and made available on the NSE and NSE Indices website, it added.

“All changes to policies related to index constituents are approved by index management committees. The rules are automatically applied without human discretion. Furthermore, the results of such automatic, rule-based reviews are also announced well before any changes are implemented. in the indexes,” it said.

“Once the index criteria have been crystallized, NSE Indices or its committees will not exercise human discretion in deciding whether to include or exclude shares in any of its indices. Based on the well-defined index criteria available on the NSE and NSE Indices website , market participants may be able to predict the changes in index constituents in various indices in the upcoming index review.

“Thus, given the current pre-announced, transparent, rules-based, automatic, non-discretionary regulatory framework for oversight actions and for inclusion/exclusion of indexes in NSE, no human discretion is possible for everyone and this whole process and practice is ongoing. for decades,” it said.

The exchange said the overall risk management framework put in place for secondary market trading is designed to provide robustness to the capital market ecosystem, especially during volatile times.