BSE eases price curb rules after sharp sell-off in small, midcaps

Mumbai: The BSE on Wednesday rolled back some of the stringent measures announced on Monday, aimed at curtailing excessive price moves in smaller stocks, after a sharp sell-off in the broader market triggered protests by traders and investors. The clarification issued midway through the trading session alleviated worries about the impact of strict curbs on small and mid-cap stocks, which recouped a chunk of their losses on Wednesday, but still ended in the red.

According to the amended circular, the new surveillance rules known as the Add-on Price Band Framework—which caps the price movement in stocks — applies only to a few stocks. These include shares that trade above ₹10 apiece with a market capitalisation less than ₹1,000 crore and are part of illiquid stock categories.

The BSE on Monday had announced tighter surveillance measures for a wider set of stocks. The exchange said stocks that had rallied six times in six months, 12 times in one year, 20 times in two years and 30 times in three years would face weekly, monthly, and quarterly price curbs. The step was aimed at reducing speculation in small and mid-cap stocks, which have been on a tear in 2021.


This circular covered a wider range of well-known small- and mid-cap stocks, spooking market participants and sparking a sell-off as many brokers asked their clients for more margins over fears that volumes may dry up due to price restrictions.

“Several mid and small-cap stocks are illiquid, and if you put more filters on price movements, it will impact the volumes,” said B Gopkumar, MD & CEO, Axis Securities. “However, now BSE has rectified the circular and relaxed the filter, which will now be applicable only for a few stocks.”

Stop-Losses Triggered
On Tuesday and earlier on Wednesday, stop-losses on trading bets set by retail market participants were triggered, resulting in a self-feeding sell-off that resulted in many mid- and small-cap stocks tumbling 10-20% in the past two days.

The BSE Midcap index ended 0.2% lower, after falling over 2.1% earlier in the day. The BSE Smallcap index, which had fallen as much as 3.3%, ended 0.8% lower. However, about 538 stocks out of the 3,332 traded on Wednesday were locked in the lower circuit. On Tuesday, 521 stocks hit the lower circuit.

The BSE clarified that stocks belonging to the X, XT, Z, ZP, ZY and Y share groups will face price limits from August 21.

Stocks in the X category are only listed on BSE, while XT stocks are settled on a trade-to-trade basis. Intra-day trading is not allowed in this latter group. Stocks grouped in the Z category are those that have failed to comply with exchange norms and are settled on a trade-to-trade basis.

The BSE has now clarified that instead of the weekly, monthly, and quarterly price limits, stocks shortlisted based on the new criteria will have six-monthly, one-yearly, two-yearly, and three-yearly price bands beyond their daily price limits. Now shortlisted stocks can move a maximum six times in six months, 12 times in one year, 20 times in two years and 30 times in three years. The BSE has also reduced the period that a stock will be in the Add-on Price Band Framework to 30 days from a minimum of 90 days.

Brokers said the price curbs had been introduced at a time when several market participants were worried about the volatility in mid-and small-cap shares, which had begun weakening in the past week. The BSE Midcap index declined 2.62% in the last six trading sessions, while the BSE Smallcap 250 index plunged 4.7%. The Sensex rose 1.36% during this period.