Investors and traders in Zomato are stampeding for the exit, but the door is closed for now. Trading in the shares has been frozen at the lower end of the 10 percent intra-day circuit filter Rs 90.45. On the NSE, around 1.36 crore sell orders are pending, 26-odd lakh shares on the BSE as well.

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To make matters worse for those looking for an exit, the stock is now on the list of additional surveillance measure (ASM) of both exchanges. This can cut both ways. It may help existing shareholders to some extent because higher margin requirements will mean that intra-day short sellers will think twice before taking a swing at the stock. On the flip side, higher margins make it expensive to trade for bargain hunters as well.

So let’s take a look at what exactly is the ASM mechanism and how does it affect the stock’s price.

First up, is it an adverse comment on the company by the exchanges?

No, it is purely a market surveillance measure to curb volatility in a stock.

How many times of ASM are there?

There is a long term ASM and a short term ASM.

Which of the lists is Zomato in?

Short term ASM.

When does a stock enter the short term ASM list?

There are two criteria. First

Stocks witnessing Close-to-Close Price Variation (based on corporate action adjusted prices) ≥ (± 40% + Beta (β) of the stock * S&P BSE Sensex variation) in 15 trading days

That sounds Greek and Latin

Yes, it does. Simply put, say the fall or rise in the closing price for 15 days is much sharper than the historical trend, ASM kicks in. Zomato shares have fallen around 25 percent since the start of the month.

Any other criteria?

The concentration of top 25 clients account ≥ 30 percent of the combined trading volume of BSE and NSE in the stock in 15 trading days. In the case of Zomato, this means that much of the selling could be coming from fund houses and wealthy traders

What happens next?

The applicable margin rate for the shortlisted stock will be increased to 40 percent. If it is already more than 40 percent, it will stay that way.

How does a stock exit ASM?

The stock will stay on the list for a minimum period of 5/15 trading days and shall be eligible for review from the 6th/16th trading day onwards. If the volatility subsides, the stock will be out of the list.

Also read | Zomato shares slide below Rs 100 mark; Jefferies keeps target price at Rs 175

What if the stock price continues to move sharply even after it is in short term ASM?

Then the exchange will slash the price band from 10 percent to 5 percent and finally to 2 percent. If the stock still remains volatile, it will be moved to the long term ASM list.

What happens once stock is on the long term ASM list?

Bad news. That would be the stock market version of rigorous imprisonment, meaning the stock will be up for review only after three months.

(Edited by : Santosh Nair)