Graded Surveillance Measure (GSM) is a framework implemented by SEBI and NSE to monitor and control trading in certain securities. It aims to boost market integrity and protect investor interests by imposing various preemptive measures on stocks showing unusual price movements or not aligned with their financial fundamentals. These measures include trading restrictions, increased margin requirements, and other actions to ensure investors exercise caution and due diligence when dealing with such securities.

In the National Stock Exchange (NSE), Graded Surveillance Measure (GSM) is a framework brought forth to monitor and regulate trading in certain securities that exhibit unusual price movements, financials, or fundamentals. The goal of introducing GSM was to protect investor interests and market integrity through trading restrictions, higher margin requirements, and other actions. These preemptive measures ensure investors exercise caution and due diligence when dealing with securities falling under the GSM framework.

• Selection Criteria -
  Stocks are shortlisted based on specific criteria like low net worth, low fixed assets, high or negative price-to-earnings (PE) ratios, and low market capitalization.
• Stages of Surveillance -
  There are multiple stages in GSM, each with increasing levels of trading restrictions:
  
  Stage I: 100% margin requirement and a price band of 5% or lower.
  Stage II: Trade for Trade with a 5% price band and an additional surveillance deposit (ASD) of 50% of the trade value.
  Stage III: Trade for Trade with a 5% price band, trading allowed once a week, and ASD of 100% of the trade value.
  Stage IV: Trade for Trade with a 5% price band, trading allowed once a week, ASD of 100% of the trade value, and no upward price movement allowed.
  
• Surveillance Actions -
  Based on price movements and trading volumes, additional measures such as moving stocks between stages, requiring deposits in cash, and maintaining restrictions until further notice are imposed.
• Quarterly Reviews -
  Securities are reviewed quarterly to determine if they should remain under GSM based on updated financial data.

Here are the stages of GSM:

• Stage I -
  Surveillance Action:
  Applicable margin rate shall be 100%.
  Price band of 5% or lower, as applicable.
• Stage 2 -
  Surveillance Action:
  Trade for Trade with a price band of 5% or lower.
  Additional Surveillance Deposit (ASD) of 50% of trade value to be deposited by the buyers.
• Stage 3 -
  Surveillance Action:
  Trade for Trade with a price band of 5% or lower.
  Trading permitted once a week (every Monday or the first trading day of the week).
  ASD of 100% of trade value to be deposited by the buyers.
• Stage 4 -
  Surveillance Action:
  Trade for Trade with a price band of 5% or lower.
  Trading permitted once a week (every Monday or the first trading day of the week).
  ASD of 100% of trade value to be deposited by the buyers.
  No upward price movement is allowed.
  

In the GSM framework, stocks face several restrictions that vary across different stages. Initially, a 100% margin requirement is imposed, and a price band of 5% or lower is applied. As a stock moves to further and further, no upward price movement is allowed in addition to other restrictions.

GSM is important for investors because it helps safeguard their interests by reducing excessive speculation and volatility in specific securities, ensuring a more stable and secure investment environment. It provides investors with increased confidence in the market and helps mitigate risks associated with highly speculative trading activities.

Buying GSM stocks can be riskier due to tighter trading restrictions and potential volatility. It's essential to conduct thorough research and understand the implications of GSM on the stock's liquidity and price movement. While GSM aims to stabilize the market, investors should weigh the risks and benefits before investing in these stocks.

Investing in stocks under the GSM category carries risks such as reduced liquidity due to trading restrictions, increased price volatility, and potential negative market perception. Additionally, these stocks may experience higher trading costs, and their prices could be impacted by sudden changes in trading conditions or investor sentiment. It's crucial for investors to carefully assess these risks and consider their investment objectives before trading GSM stocks.