In a market where small-cap stocks often display erratic behaviour and attract speculative trading, protecting retail investors becomes crucial. To manage this, stock exchanges introduce special frameworks aimed at curbing excessive volatility and improving transparency. One such mechanism is the Enhanced Surveillance Measure, or ESM.
While many investors may have come across the term, the actual intent and impact often go unnoticed.
Recently, NSE and SEBI reviewed the ESM framework for low market-cap companies and introduced key changes to address speculative price movements. Here’s what’s changing — and what it means for investors.
What’s Happening?
On July 25, 2025, NSE and SEBI reviewed the ESM framework for companies with market caps below Rs 1,000 crore. They revised the shortlisting criteria and stage-wise movement, while keeping the stage-wise actions unchanged.
These changes will take effect from July 28, 2025, with the list of shortlisted stocks to be published accordingly. Importantly, NSE clarified that a stock being placed under ESM is a surveillance action, not a reflection of the company’s fundamentals.
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Revised ESM Framework by NSE
Under the updated framework, stocks will be monitored in two stages. In Stage 1, companies will be identified based on price volatility over 3, 6, or 12 months. Stocks showing unusually high price movement, combined with a positive price trend, will be shortlisted.
Stocks will be shortlisted if they meet either of the above conditions. However, derivative-listed stocks will be excluded from this list.
In Stage 2, stocks already in Stage 1 will be further reviewed. If prices continue to rise sharply in a short span or over a month, they will face tighter trading restrictions, including reduced price bands and higher margin requirements.
Exit and Review Process
Stocks under ESM will be reviewed weekly to determine whether they should be downgraded to a lower stage or removed from the framework.
To exit the framework entirely, a stock must remain listed under ESM for at least 90 calendar days, and no longer meet the shortlisting criteria.
If a stock is in Stage 2, it must stay there for at least 1 month. If its monthly price variation drops below 15%, it may move back to Stage 1.
Once a stock exits ESM, its original price band will be restored — unless it is simultaneously under another surveillance measure.
What’s in It for Investors?
For retail investors, especially those investing in small-cap stocks, these updates are positive. They offer better protection from pump-and-dump schemes and speculative spikes that are common in low-cap counters.
By tightening surveillance and enforcing stricter compliance, NSE aims to ensure price movement is driven more by fundamentals than hype.
This move enhances transparency and strengthens market stability. Investors can now make more informed decisions, with the confidence that the riskiest stocks are being closely watched.
What’s Next?
The updated list of ESM-shortlisted stocks is expected shortly after July 28, 2025. Investors should stay updated with this list to understand which stocks are under watch — and why.
Looking ahead, SEBI and NSE may continue refining the framework as markets evolve. For now, this move reflects a proactive stance to protect retail investors and maintain the overall health of the Indian capital markets.
*The article is for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
