The National Stock Exchange (NSE) has addressed concerns surrounding its surveillance actions and index rejig mechanisms, stating that they operate transparently and in accordance with established rules. The exchange explained that its surveillance actions on eligible stocks are based on non-discretionary, pre-announced rules that are automatically applicable. The rules for inclusion or exclusion of stocks under Additional Surveillance Measures (ASM) and other trading activity are based on parameters such as price volatility, volumes, market capitalization, client concentration, and liquidity parameters. The exchange clarified that these rules are implemented automatically, and there is no human discretion involved.
The NSE’s response comes after the Adani group stocks were placed under surveillance following a report by US-based short seller Hindenburg. The exchange had put Adani Enterprises, Ambuja Cements, and Adani Ports and Special Economic Zone in the surveillance framework on February 3. While Ambuja Cements and Adani Ports moved out of the framework last month, surveillance measures on Adani Enterprises were lifted earlier this month. The exchange stressed that its surveillance actions on eligible stocks are transparent and are based on established rules.
In addition, the NSE clarified that its inclusion and exclusion of stocks in various Nifty indices are based on objective, non-discretionary, rules-based, pre-announced, and transparent index methodologies. The exchange stated that the criteria for including any stock into an index or excluding any existing stock from an index are well defined, documented, and made available on NSE and NSE Indices website. The specific methodology for each Nifty index may be different based on the objective of the index and the underlying market that the index seeks to represent. For example, the inclusion of stocks in Nifty 50, India’s flagship index, is based on free float market capitalization, impact cost, trading frequency, and availability of a stock for trading in the F&O segment of the exchange.
The NSE has repeatedly emphasized that once the index criteria have been crystallized, there is no “human discretion” in deciding on the inclusion or exclusion of stocks in any of its indices. The exchange’s response aims to assure investors that its surveillance actions and index rejig mechanisms operate in a transparent and rules-based manner.