Mid cap, small cap stocks tumble on concerns over BSE's Add-on Price Band Framework

Small caps and mid cap stocks crashed in trade today as investors were circumspect about a new surveillance framework introduced by BSE for certain stocks.

While BSE midcap index lost 490 points intra day to 22,272, the small cap index crashed 862 points to 25,203. Later, the indices recovered most of the ground after BSE issued a clarification on the price band framework.

BSE mid cap index closed 51 points lower at 22,710 and BSE small cap index lost 216 points to 25,849.

The framework is aimed at countering price volatility in mid and small-cap stocks and will come into effect on August 23.

According to a press release on August 9, the stocks shortlisted will be subjected to additional periodic price limits viz. weekly, monthly and quarterly price limits. These add-on price bands shall be in addition to the applicable daily price bands of such securities.

The add-on price band shall be calculated in terms of a ratio of close price of the security. There will be different ratios of add-on price bands depending upon the daily price band slab applicable for the security.

Further, the add-on price band shall be expressed in terms of a ratio of close price of the security and depending upon the daily price band slab.

"Once the security reaches the respective price limit of a period, trading shall be allowed only within the respective prescribed price range and the same shall not be revised till the beginning of the next cycle i.e. next Week/Month/Quarter wherein new price limits shall be computed for the respective periods," BSE said.

The final upper daily price band shall be the minimum of all individual upper price band limits and the final lower daily price band shall be the maximum of all individual lower price band limits.

For example, if the security is having a daily price band slab of 10%, periodic price limits under the framework shall be as follows:

To assuage investors' concerns post the introduction of new rules, BSE today clarified that the new framework shall be applicable to companies with a market capitalisation of less than Rs 1,000 crore and on securities in groups -- X, XT, Z, ZP, ZY, and Y.

Earlier, a security placed in add-on price band would have remained in the framework for a minimum period of 90 calendar days. Now BSE has reduced this duration to 30 days.

Written by Aseem Thapliyal