A major objective of BSE is to promote and inculcate honourable and just practices of trade in securities transactions, and to discourage malpractices.
The surveillance function at BSE has assumed greater importance over the last few years. It has a dedicated Surveillance Department to keep a close, and a daily, watch on the price movement of Securities , detect market manipulations like price rigging, etc., monitor abnormal prices and volumes which are not consistent with normal trading pattern and monitor the Members' exposure levels to ensure that defaults do not occur. This Department, which is headed by a General Manager, reports directly to Managing Director.
As per the guidelines issued by SEBI, except for Securities on which derivative products are available and are part of indices on which derivative products are available,a daily Circuit Filter of 20% is applied on all Securities.Circuit filters ensures that the price of a Security cannot move upward or downward beyond the limit set for the day.BSE has imposed dummy circuit filters to avoid freak trade due to punching errors by the Trading Members.
The abnormal variation in the prices as well as the volumes of the Securities are scrutinised and appropriate actions are taken. The Securities which reach new high or new low and companies which have high trading volumes are watched closely. A special emphasis is laid on the newly listed Securities.
In case certain abnormalities are noticed, the circuit filters are reduced to make it difficult for the price manipulators to increase or push down the prices of a Security within a short period of time. BSE imposes special margins in Securities where it suspects an attempt to ramp up the prices by creating artificial volumes. BSE also transfers the Securities for trading and settlement to the trade-to-trade category which leads to giving/taking delivery of shares on a gross level and no intra-day/settlement netting off/squaring off facility is permitted. If abnormal movements continue despite the aforesaid measures, BSE suspends the trading in the Security.
Detailed investigations are conducted in cases where price manipulation is suspected and disciplinary action is taken against the concerned Members.
BSE has an On-line Real Time (OLRT) Surveillance System, which has been in operation since July 15, 1999. Under this system, alerts are generated on-line, in real time during the trading hours, based on certain preset parameters like the price and volume variation in Securities, a Member taking unduly large positions not commensurate with their financial position or having concentrated positions in one or more Securities.
This system integrates several databases like company profiles, Members' profiles and historical data of turnover and price movement in Securities, Members' turnovers, their pay-in obligations, etc.