For all stocks, surveillance activities adhere to clear, non-discretionary rules: NSE

NSE on Sunday defended its action, claiming that such actions are based on non-discretionary, pre-announced, automatically applicable rules and involve no human interventions. This came in response to criticism of its decision by the Opposition to exclude three Adani group stocks from short-term surveillance.

After the National Stock Exchange (NSE) and BSE last week announced that three Adani group companies — Adani Enterprises, Adani Power and Adani Wilmar — will move out of the short-term additional surveillance measure (ASM), the Congress had asked why the stock exchange regulator, the Securities and Exchange Board of India (Sebi), is standing by and allowing investors to take on added exposure to such stocks.

Jairam Ramesh, the general secretary for communications at the Congress, also stated that while major index providers like MSCI, S&P, Dow Jones, and FTSE Russell were reviewing the position of the Adani stocks in their equity indices, the NSE took the opposite tack and, as of March 20, included five companies from the Adani Group in no less than 14 indices.

Adani Green Energy and NDTV will be included to the first stage of the long-term additional surveillance measures (ASM) framework starting on Monday, per a decision made by the NSE and BSE.

The NSE said in a comprehensive statement on Sunday that all qualified equities are subject to non-discretionary, pre-announced, automatically applied, and transparent restrictions.

Moreover, the exchange said that the periodic inclusion and removal of companies from the index followed non-discretionary, declared, automated, and transparent criteria.

The inclusion or exclusion of stocks under Additional Surveillance Measures (ASM) and other trading activity-based specific rules, such as price bands and trade for trade (T2T), are based on variables that take into account price volatility, volumes, market capitalization, client concentration, liquidity parameters, etc. The NSE said that the precise guidelines and the time frame for application have been in the public domain and followed consistently.

According to the NSE, which said that these regulations and review periods are also pre-announced to the market, these rules are enforced automatically and no human discretion is permitted.

The outcomes of these previously stated regulations are in the public domain and are applied uniformly to all the stocks that fall within the purview of such rules.

Of of the 10 listed firms on Friday, shares of seven of them belonged to the Adani Group.

After the report by US-based short seller Hindenburg Research, several of the group equities took a battering on the stock exchanges. Nevertheless, they have since made some last-minute gains.

The firm had been accused of a long list of things in the study, such manipulating share prices and engaging in fraudulent transactions, but Adanis has called the accusations baseless and said that it complies with all legal and transparency obligations.

According to NSE, its whole structure has been tried and true, and any modifications to the regulations are also communicated in advance of any future actions based on the new rules being applicable.

"Process Audits and routine inspections are conducted to make sure the set criteria are being followed. No exceptions are permitted since the activities are carried out automatically, it continued.

The exchange said that the periodic inclusion and removal of firms from the different Nifty indexes followed clear procedures.

According to the NSE and NSE Indices website, the index criteria for incorporating any stock into an index or eliminating any current stock from an index are clearly stated, recorded, and made public.

"Index governance committees must approve any modifications to policies pertaining to an index's members. The laws are automatically followed without human judgement. However, the outcomes of such automated rules-based evaluations are also made public well before any changes—if any—to the indexes are actually put into effect, it said.

NSE Indices or its committees "use no human discretion in determining whether to include or exclude companies from any of its indexes after the index criteria have been crystallised. Market participants are able to forecast the changes in index constituents in different indices in the next index review based on the clearly specified index criteria published on the NSE and NSE Indices website.

Therefore, it stated, "no human discretion is possible for anyone given the current pre-announced, transparent, rules-based, automatic, non-discretionary regulatory framework for surveillance measures and for index inclusion/exclusion at NSE." This entire process and practise, it added, has been in place for decades.

The exchange said that its comprehensive risk management structure, which was set up for trading in the secondary market, was created to provide the capital market ecosystem strength, particularly during tumultuous times.