GSM (Graded Surveillance Measure)
The Graded Surveillance Measure (GSM) is a multi-stage SEBI-mandated regulatory framework applied to listed stocks with poor financial fundamentals combined with abnormal trading activity, imposing escalating restrictions up to trade-to-trade settlement and enhanced margin requirements.
The GSM framework was introduced in May 2017 as a more stringent companion to the ASM framework, specifically targeting stocks of companies where poor or questionable fundamentals accompanied unusual price or volume behaviour. While ASM focused primarily on price and volume anomalies irrespective of fundamentals, GSM was designed to address cases where a company's financial health appeared inconsistent with the market behaviour of its shares — for instance, a company with negative net worth, consistent losses, or a very low market capitalisation relative to price.
GSM operated through six stages of escalating restrictions. At Stage I, the stock was placed on the GSM list with enhanced margin requirements and monthly trade-to-trade settlement. At higher stages, the margin requirement increased progressively (reaching 100 percent by the higher stages), trading frequency was restricted (trades permitted only once a week or once a month), and the stock was shifted to the T2T segment where intraday netting was prohibited. Stage VI represented the most restrictive regime, where trading was permitted only once a month with 100 percent upfront margin.
The criteria for GSM inclusion were largely fundamental: stocks with negative net worth on the latest available balance sheet, very low revenue, persistent losses over multiple years, or a price-to-earnings ratio that was extreme without any apparent operational justification, were candidates. The intent was to slow down trading activity in stocks that showed signs of being potential pump-and-dump targets — shares of shell companies or financially distressed entities whose prices had been driven up artificially.
For promoters and companies, GSM inclusion was reputationally damaging and often triggered a sustained period of share price weakness as institutional and retail investors exited due to the trading restrictions. Companies could apply for review of their GSM status by providing updated audited financials demonstrating improved fundamentals, but the review process took time and required demonstrated sustenance of improvement.
SEBI's decision to introduce and maintain GSM reflected a broader regulatory philosophy that exchange listing was a privilege with responsibilities attached. Companies that met only the minimum listing standards but showed patterns of possible misuse of their listed status to facilitate speculative trading faced the full weight of the surveillance framework.