Stock markets are trending. They are trending on social media. The stock charts are trending upwards and upwards. IPOs are getting a lot of attention and subscriptions from the public.
While 2020 saw 31 IPOs, we have already crossed that mark in July this year. There have been a record number of Demat account openings.
CDSL, a 22-year-old company, that had crossed the 2.5 crores Demat account mark in September 2020, crossed the 4 crore mark in just 9 months. Everyone wants a pie in the cake that stock market is. Everyone everywhere is talking about the importance of saving and investing.
People waking up to the benefits of robust management of personal finance is a reason to cheer. But, it has also become a reason to fear. There have been several incidents that did not make any logical sense for investment, yet the stocks kept touching new highs.
Take the case of Deewan Housing Finance Limited. The stock was going to be delisted as part of its insolvency process. Investors could lose their entire money. Yet, they kept betting on the stock that rose by ~50%!
In the past one year, S&P BSE Midcap (the 15% stocks that come after the biggies at BSE) has gone up by 57.84% and S&P BSE Smallcap (the smallest 15% of all stocks listed on BSE) has gone up by 86.81%!
Isn’t that crazy?
Yes. The risk appetite of investors is increasing. Since everything is going up, they aren’t shying away from placing risky bets either.
But, the faster go up, the faster they come down.
So, “to maintain market integrity and curb excessive price movement”, BSE has felt the need to step in. Even if the retail investors don’t realize this, a stock exchange gotta protect them, right?
It has introduced some new measures, which will be applicable for stocks trading exclusively only on BSE. If there is a stock that is trading on both BSE and NSE or only NSE, the new rules won’t apply to them.
Now, what are those measures?
No trading beyond a certain level of fluctuation. These are called circuits.
But we already have a system of circuits in place. If the stock value fluctuates more than 2-20% (as applicable on the stock) on a given day as compared to its last day’s closings, any further trading will be halted for the day. What’s new in that?
Well, the new circuits will be applicable for a longer time frame, to prevent volatility in a weekly, monthly and quarterly period. So, the stock prices will only be allowed to trade in between the limits set for the weekly, monthly, and quarterly period. It can’t go below the ceiling or above the roof.
Don’t worry, BSE got you covered.
However, all stocks have not been subjected to these rules. They are only applicable to stocks with a market capitalisation of less than Rs.1,000 crores. So they typically cover the midcap and the smallcap firms, which are often targets of malicious trading for price manipulations.
Even in this category, BSE will narrow down the pool by further nitpicking on the extremely fishy stocks: The ones that have had extremely high movements.
But why are we just talking BSE? Isn’t NSE doing this?
Well, the number of stocks trading on NSE is only 1,700 as compared to 3,899 stocks on BSE. Since the listings on NSE are so much lower, the risk of manipulation is less too.
Do you think these measures will help retail investors in the long run? Or is this going to interfere with free-market movements?
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