The Securities and Exchange Board of India (SEBI) published the Master Circular on Surveillance of Securities Market as a consolidated reference covering operative surveillance instructions issued over time by SEBI and the exchanges.
🔴 Quick Summary — What This Master Circular Covers
What It Is
A single consolidated master circular replacing all previous ISD surveillance circulars — one document, all rules.
Key Frameworks Covered
GSM, ESM, LT-ASM, ST-ASM, PCAS, Trade for Trade, Pledge/Encumbrance rules, PIT disclosures, Algo trading, RTCM and more.
Who Must Read This
All SEBI-registered intermediaries, listed companies, promoters, compliance officers, Professionals and investors.
| Detail | Information |
|---|---|
| Document Type | Master Circular (Consolidation of all ISD Surveillance Circulars) |
| Subject | Master Circular on Surveillance of Securities Market |
| Issued By | SEBI — Integrated Surveillance Department (ISD) |
| Date of Issue | May 15, 2026 |
| Effective Date | Immediately — from date of issue |
| Previous Circular Superseded | SEBI/HO/ISD/ISD-PoD-2/P/CIR/2024/126 dated September 23, 2024 (and all circulars listed in Annexure) |
| SEBI Source | sebi.gov.in — May 2026 Master Circulars |
🏛️ Section 1 — Background: What is Market Surveillance and Why Does It Matter?
Market surveillance is SEBI's mechanism to detect, deter, and penalise manipulative, fraudulent, and unfair trading practices in India's securities markets. It functions as a continuous monitoring system for trading patterns, disclosures, and market integrity. — monitoring prices, volumes, trading patterns, insider disclosures, and intermediary conduct across stock exchanges.
Over the years, SEBI and stock exchanges (NSE, BSE) have issued dozens of individual circulars covering specific surveillance mechanisms. A Master Circular consolidates all active provisions into one document — making compliance simpler and reducing the risk of intermediaries missing any operative instruction. The May 2026 Master Circular is the most current such consolidation, replacing the September 2024 version.
ℹ️ What Does "Integrated Surveillance Department (ISD)" Do?
ISD is the SEBI department responsible for market-wide surveillance — monitoring trading activity across all exchanges, identifying abnormal patterns, coordinating with exchanges on surveillance frameworks, and issuing circulars on surveillance norms. It works in tandem with exchanges through Joint Surveillance Meetings where decisions on frameworks like ASM, GSM, and ESM are taken collaboratively.
🗂️ Section 2 — What This Master Circular Covers: Complete Overview
The Master Circular is organised subject-wise under the following broad heads. Each is explained in detail in subsequent sections:
📋 Part A — Stock-Level Surveillance
- Periodic Call Auction Session (PCAS) — Illiquid Securities
- Graded Surveillance Measure (GSM)
- Enhanced Surveillance Measure (ESM)
- Long Term Additional Surveillance Measure (LT-ASM)
- Short Term Additional Surveillance Measure (ST-ASM)
- Trade for Trade (TFT) — Periodic Review
📋 Part B — Company/Promoter Level Surveillance
- High Promoter Pledge / Encumbrance (SAST Reg. 28)
- Low Non-Promoter Holding
- Inter Creditor Agreement (ICA) monitoring
- IBC (Insolvency) — Surveillance on defaulting companies
📋 Part C — Trading Member Surveillance
- High Order-to-Trade Ratio (OTR) monitoring
- Order spoofing — Additional Surveillance Margin
- Reversal Trade Cancellation Mechanism (RTCM)
- Client Code Modification penalties
- Algo trading — unique identifier + retail safeguards
- Cautionary messages on trading terminals
- Quarterly surveillance reporting by members
📋 Part D — Disclosure & Derivatives Surveillance
- PIT Regulations — Insider trading disclosure forms
- Unauthenticated news monitoring by intermediaries
- Position limits monitoring — equity derivatives (MWPL)
- Intraday MWPL monitoring on single stocks (FutEq basis)
- Foreign investment limits monitoring
- Deep Out-of-the-Money (OTM) contracts surveillance
🔔 Section 3 — Periodic Call Auction Session (PCAS): Illiquid Securities
The Periodic Call Auction Session (PCAS) is a special trading mechanism for securities that are highly illiquid — i.e., barely traded. Instead of continuous trading, these scrips are available only through periodic auction windows. This protects investors from price manipulation in thinly traded stocks.
Criteria for Inclusion in PCAS
A security is identified as illiquid — and shifted to PCAS — when both the following apply:
| # | Criterion | Threshold |
|---|---|---|
| 1 | Average daily turnover (previous 2 quarters) | Less than ₹2 lakhs |
| 2 | Classification at all exchanges where listed | Illiquid at all exchanges |
Exclusions from PCAS
- ETFs and Mutual Fund units
- Securities with derivative products or no price band
- Partly paid shares, convertible warrants, DVR, debt, preference shares
- Securities that commence trading during the quarter
- Securities under GSM Stage III/IV or ASM IBC Stage I/II
Exit Criteria from PCAS
A security can exit PCAS if it has been in PCAS for at least two quarters AND meets any one of:
- Average market capitalisation > ₹10 crore (last two quarters' closing Mcap)
- Company paid dividend in at least 2 out of last 3 years
- Company profitable in 2 out of last 3 years AND promoter pledge ≤ 20% AND book value ≥ 3× face value
The common illiquid scrips list is prepared on the 4th working trading day of every quarter in coordination between NSE and BSE and becomes effective on the 2nd working Monday of the quarter.
📊 Section 4 — Graded Surveillance Measure (GSM): Fundamentally Weak Stocks
The Graded Surveillance Measure (GSM) is a pre-emptive surveillance framework targeting stocks whose price rise is not supported by financial fundamentals. If a stock's valuation (P/E, P/B) is disproportionate to its actual financial health (networth, assets, earnings), it is placed under GSM — signalling investors to exercise caution.
Simple Explanation: If a company with ₹5 crore networth and ₹10 crore in assets is trading at 50× the market P/E, that is a red flag. GSM identifies such situations — the stock is not "banned" but trading is made more restrictive to slow down speculative activity.
GSM Inclusion Criteria — Mainboard Companies
| Criteria | Condition 1 | Condition 2 | Condition 3 |
|---|---|---|---|
| Criteria I (All 3 must be met) | Net worth ≤ ₹10 crore | Net Fixed Assets ≤ ₹25 crore | PE > 2× Nifty 500 PE OR Negative PE |
| Criteria II (Both must be met) | Full Market Cap < ₹25 crore | PE > 2× Nifty 500 PE OR Negative PE → then P/B > 2× benchmark OR Negative P/B | — |
GSM Inclusion Criteria — SME Segment
| Criteria | Conditions |
|---|---|
| SME Criteria I | Net worth ≤ ₹5 crore AND Net Fixed Assets ≤ ₹10 crore AND PE > Nifty 500 PE OR PE ≤ 0 |
| SME Criteria II | Market Cap < ₹10 crore AND PE > Nifty 500 PE OR Negative PE (then P/B > benchmark or Negative P/B) |
GSM — Key Exclusions
- Securities where price discovery is yet to happen (newly listed)
- Securities already under suspension
- Securities with derivative products available
- Constituents of any index (NSE or BSE)
- IPOs listed in the last 1 year
- Securities that paid dividend in each of the last 3 years
- Securities with institutional holding > 10% — if promoter hasn't sold in 5 years AND current price is within the 3-year High-Low range
- Securities listed through Merger/Demerger in last 1 year (with conditions)
GSM — Four Stages of Action
| Stage | Surveillance Actions |
|---|---|
| Stage I | 100% margin requirement + Price band of 5% (or lower as applicable) |
| Stage II | Trade for Trade (TFT) settlement + 5% price band + Additional Surveillance Deposit (ASD): 50% of trade value by buyers |
| Stage III | TFT + 5% price band + Trading permitted once a week (Monday / 1st trading day) + ASD: 100% of trade value by buyers |
| Stage IV | TFT + 5% price band + Once a week trading + ASD: 100% of trade value + No upward price movement allowed |
📌 Key update (Sep 2024): GSM framework now extended to Public Sector Undertaking (PSU) companies as well — which were previously excluded. All other GSM provisions remain unchanged for PSUs.
GSM review is quarterly — based on latest available financial results filed within 45 days of quarter end (mainboard) or 60 days for annual results. Price band upward revision is daily; lower revision is monthly.
⚡ Section 5 — Enhanced Surveillance Measure (ESM): Abnormal Price Movement Stocks
While GSM focuses on fundamentally weak stocks, the Enhanced Surveillance Measure (ESM) targets stocks with abnormal price movements — especially those in the small and micro-cap space. ESM was introduced in June 2023, progressively extended, and significantly revised in July 2025.
ESM Coverage — Evolution
| Period | Scope of ESM |
|---|---|
| June 2023 | Micro-small companies — Market Cap < ₹500 crore (mainboard) |
| August 2024 | Extended to mainboard companies with Market Cap < ₹1,000 crore |
| October 2024 | Extended to SME segment stocks |
| September 2024 | Extended to PSU companies |
| July 2025 (Current) | Revised framework — new shortlisting criteria and stage movement rules (effective July 28, 2025) |
ESM Shortlisting Criteria (Revised — Effective July 28, 2025)
A security is shortlisted if it satisfies either Condition 1 OR Condition 2:
Condition 1 — High-Low Variation
High-Low price variation (corporate action adjusted) in 3M, 6M, or 12M ≥ 1 Standard Deviation of all qualifying companies
Minimum thresholds:
- 3 months > 75%
- 6 months > 100%
- 12 months > 150%
+ Positive close-to-close variation in last 3 months
Condition 2 — Close-to-Close Variation
Close-to-Close price variation (corporate action adjusted) in 3M, 6M, or 12M ≥ 1 Standard Deviation
Minimum thresholds:
- 3 months > 50%
- 6 months > 75%
- 12 months > 100%
Exclusion: Securities on which derivative products are available are excluded from ESM shortlisting.
ESM — Stage-wise Actions
| Stage | Entry Condition | Action |
|---|---|---|
| Stage I | Identification based on shortlisting criteria above | 100% margin from T+2 day + Trade for Trade settlement + Price band: 5% (or 2% if already in 2% band) |
| Stage II | From Stage I: Close-to-Close variation ≥ +15% in 5 days OR ≥ +30% in a month AND PE ≤ 0 or PE > 2× Nifty 500 | 100% margin + Trading only under Periodic Call Auction with ±2% price band |
ESM Exit Conditions
- Minimum stay in ESM: 90 calendar days
- Stage II minimum stay: 1 month; can move to Stage I if close-to-close positive variation < 15% in that month
- After 90 days, eligible for stage-wise exit if entry criteria are no longer met
- Price band reverts to pre-ESM band on exit (unless the scrip is under another surveillance measure)
📈 Section 6 — Long Term Additional Surveillance Measure (LT-ASM)
LT-ASM targets stocks that show sustained price run-ups with concentrated trading activity — patterns typically associated with organised price manipulation over an extended period. Unlike GSM (which focuses on fundamentals) and ESM (which targets micro-caps), LT-ASM can cover stocks of any size including large-cap stocks.
LT-ASM — Seven Shortlisting Criteria
A stock meeting any one of the following seven criteria is eligible for LT-ASM:
| Criterion | Conditions (ALL must be met within criterion) |
|---|---|
| 1 | High-Low price variation in 3 months > (150% + Beta × Nifty 50 variation) AND Top 25 client concentration ≥ 25% of NSE+BSE combined volume (last 30 days) AND Market Cap > ₹100 crore |
| 2 | Close-to-Close variation in last 60 trading days > (100% + Beta × Nifty 50 variation) AND Top 25 concentration ≥ 25% AND Mcap > ₹100 crore |
| 3 | Close-to-Close variation in 365 days > (100% + Beta × Nifty 50) AND High-Low variation in 365 days > (200% + Beta × Nifty 50) AND Mcap > ₹500 crore AND Top 25 ≥ 25% |
| 4 | Avg daily volume ≥ 10,000 shares AND Monthly volume variation > 500% of preceding 3M avg daily volume (at both exchanges) AND Top 25 ≥ 25% AND Avg delivery % < 50% (last 3M) AND Mcap > ₹500 crore AND Close-to-Close in 1M ≥ (50% + Beta × Nifty 50) Exemption: Bulk/Block quantity > 50% of avg volume |
| 5 | Close-to-Close variation > (25% + Beta × Nifty 50) in a month AND PE negative or > 2× Nifty 50 PE AND Mcap < ₹500 crore |
| 6 | SME stocks: Close-to-Close ≥ ±25% + Beta × NIFTY SME EMERGE in 15 days OR ≥ ±50% in 30 days OR ≥ ±90% in 3M AND PE negative or ≥ 2× NIFTY SME EMERGE PE |
| 7 | Scrips in ±10%/5%/2% bands: Close-to-Close in 365 days ≥ (200% + Beta × Nifty 50) AND High-Low in 365 days ≥ (300% + Beta × Nifty 50) AND Mcap > ₹1,000 crore AND Top 25 ≥ 25% → Direct placement in Stage IV for minimum 90 days |
⚠️ Exam-critical point: Criterion 7 stocks (very large caps with extreme 1-year price movements + concentrated top 25 traders) are placed directly in Stage IV of LT-ASM — skipping Stages I, II, and III — for a minimum 90 days. This is a special accelerated mechanism for suspected large-scale manipulation.
LT-ASM also extends to derivative stocks and their F&O contracts from T+3 day. Securities complete 90 calendar days before becoming eligible for stage-wise exit.
⚡ Section 7 — Short Term Additional Surveillance Measure (ST-ASM)
ST-ASM is a shorter-cycle version of surveillance, designed to catch rapid price run-ups over weeks rather than months. It operates with quicker review cycles and acts as a first layer of response before a stock potentially moves to LT-ASM.
ST-ASM Action
- Applicable margin: 100% or existing margin, whichever is higher
- If no LT-ASM criteria met → Stock continues under Stage II ST-ASM
- If LT-ASM criteria triggered → Moves to LT-ASM framework
ST-ASM Review
- If stock does not meet entry criteria on review date → Moved out of ST-ASM
- Also applicable to SME stocks (with adjusted criteria)
- Exchange seeks clarification from company on any undisclosed corporate announcements upon identification
🔒 Section 8 — Promoter-Level Surveillance: Pledge, Encumbrance & Low Float
8A. High Promoter Pledge
SEBI/exchanges monitor stocks where promoter pledge is disproportionately high. High promoter pledge creates risk because if the stock price falls, lenders may sell the pledged shares — causing a cascade decline. Surveillance measures (margin enhancement, TFT, etc.) are applied to such stocks to deter speculative activity that could trigger or exploit pledge-based sell-offs.
8B. High Promoter Encumbrance — SAST Regulation 28(3)
Under Regulation 28(3) of SEBI (SAST) Regulations 2011, promoters must disclose when their aggregate encumbrance (pledge + non-pledge encumbrances like lien, hypothecation) reaches specified thresholds. SEBI monitors such disclosures and may impose additional surveillance on stocks with high promoter + non-promoter encumbrance beyond regulatory thresholds.
8C. Low Non-Promoter Holding
Stocks with very low public float (non-promoter holding) are particularly vulnerable to price manipulation because it takes very little capital to move the price. SEBI monitors such stocks and applies appropriate surveillance measures to prevent cornering / cornering-style manipulation in low-float scrips.
🖥️ Section 9 — Trading Member Surveillance: OTR, Spoofing, RTCM & Algo Trading
9A. High Order-to-Trade Ratio (OTR)
Order-to-Trade Ratio (OTR) is the ratio of orders placed to trades actually executed. Algo traders sometimes place and cancel large numbers of orders to create artificial demand/supply signals without any intention to trade — a practice called "quote stuffing". SEBI monitors OTR and imposes penalties on trading members with persistently high OTR beyond prescribed limits. Updated frameworks were issued in February and April 2026.
9B. Order Spoofing — Additional Surveillance Margin
Spoofing involves placing large orders on one side of the order book to mislead other participants about demand/supply, then cancelling them once the intended price movement is achieved. SEBI imposes additional surveillance margin on trading members identified as persistent noise creators or spoofers.
9C. Reversal Trade Cancellation Mechanism (RTCM)
RTCM is a mechanism that automatically cancels trades that appear to be reversal trades — i.e., trades where two parties buy and sell the same security between themselves, creating artificial volume without actual change of beneficial ownership. RTCM is operative in both equity cash segment (from June 2024) and equity derivatives segment (from December 2024 onwards).
9D. Algo Trading Surveillance
Unique Identifier for Algorithms
Every algorithmic trading strategy deployed by a trading member must have a unique identifier tag — enabling exchanges to track and isolate specific algo behaviour for investigation.
Retail Investor Algo Safeguards
SEBI has introduced safeguards for retail investors participating in algorithmic trading (e.g., through third-party algo platforms) — covering risk disclosures, broker obligations, and limits on retail algo access. Updated provisions issued in 2025.
9E. Cautionary Messages on Trading Terminals
Exchanges are required to display cautionary pop-up messages on trading terminals when a client attempts to trade in securities under ASM, GSM, ESM, or other surveillance frameworks. This ensures investors are explicitly warned before executing trades in high-risk / surveilled stocks.
9F. Quarterly Surveillance Reporting by Trading Members
Trading members are required to submit quarterly surveillance compliance reports to exchanges — covering their internal surveillance systems, suspicious trade detection, client monitoring, and compliance with SEBI surveillance norms. This is a mandatory compliance obligation for all SEBI-registered brokers.
9G. Client Code Modification Penalties
Client code modifications (CCM) — changing the client code on a trade after execution — can be misused to shift profits/losses between clients. SEBI has prescribed a penalty framework for abnormal/non-genuine CCMs. Trading members with excessive client code modifications attract financial penalties and enhanced scrutiny. Penalties apply across all segments (equity, currency, commodity, F&O).
📋 Section 10 — PIT Regulations: Insider Trading Disclosure Reporting
A significant portion of the Master Circular covers monitoring and reporting under the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations). This section standardises the forms and procedures for insider trading disclosures.
| Disclosure Form | Who Files | What is Disclosed |
|---|---|---|
| Form A (Reg 6(2)) | KMPs, Directors, Promoters upon appointment / becoming promoter | Holdings + Open Interest in derivatives of the company at the time of appointment |
| Form B (erstwhile Form C) | Promoters, Promoter Group, Designated Persons, Directors | Change in holdings of securities (including derivatives — notional value = premium + strike price for options) |
| Form C (erstwhile Form B) | Promoters, Promoter Group, Designated Persons, Directors | Trading in derivatives (futures + options) on company securities — notional value basis |
⚠️ Compliance Officer Liability
As per the Master Circular, if an entity is found to have violated PIT Regulations, the Compliance Officer shall also be held liable for breach of duty in this regard. This is a significant provision — Professionals acting as Compliance Officers must ensure timely, accurate PIT disclosures by all insiders.
Non-compliance shall be deemed a violation of the SEBI Act, 1992 and Rules/Regulations framed thereunder, attracting enforcement action.
📊 Section 11 — Derivatives Market Surveillance
11A. Position Limits in Equity Index Derivatives
Exchanges monitor position limits for index futures and options contracts to prevent cornering or excessive concentration. Breaches trigger automatic alerts and escalation procedures. Updates to this framework were issued across multiple dates in 2024-25.
11B. Intraday MWPL Monitoring — Single Stocks (FutEq Basis)
From October 31, 2025, SEBI introduced intraday monitoring of Market-Wide Position Limits (MWPL) for single stock derivative contracts on a Futures Equivalent (FutEq) basis. This means MWPL compliance is checked during market hours — not just at end of day — preventing participants from temporarily breaching limits intraday and reverting before close.
11C. Deep Out-of-the-Money (OTM) Contracts
Deep OTM options contracts (with very low probability of exercise) can be misused for tax evasion, money laundering, or creating artificial open interest. SEBI monitors unusual activity in deep OTM contracts and applies surveillance measures to deter misuse.
11D. Foreign Investment Limits Monitoring
Exchanges monitor the aggregate FPI/FDI holdings in listed companies to ensure compliance with sectoral foreign investment caps. Alerts are triggered when holdings approach the prescribed limits, and companies are placed in the caution list requiring prior exchange approval for further foreign acquisition.
11E. Unauthenticated News — Intermediary Obligations
SEBI-registered intermediaries (brokers, advisors, research analysts) are prohibited from forwarding or acting on unauthenticated market tips, price-sensitive rumours, or unverified news — whether on social media, WhatsApp groups, SMS, or any other platform. This covers:
- Brokers must have documented policies on employee use of social media
- Any client receiving/forwarding such information through broker-controlled platforms must be flagged
- Cautionary messages must be issued about dealing with unsolicited videos and messages from social media
- Violations make the intermediary liable under SEBI Act
📊 Section 12 — Master Comparison: All Surveillance Frameworks at a Glance
| Framework | Target | Key Trigger | Action | Review Cycle |
|---|---|---|---|---|
| PCAS | Illiquid securities | Avg turnover < ₹2L/day for 2 qtrs | Periodic call auction only | Quarterly |
| GSM | Fundamentally weak stocks with overvalued price | Low networth/assets + high PE/P/B vs benchmark | 4 stages: 100% margin → TFT → weekly trading → no upward move | Quarterly |
| ESM | Small/micro caps with abnormal price moves | Extreme H-L or C-C variation vs peers (standard deviation) | 2 stages: 100% margin + TFT → Periodic call auction | Weekly (min 90 days stay) |
| LT-ASM | Any stock with sustained run-up + concentrated trading | 7 criteria — price variation + top 25 client concentration + Mcap | Stage-wise: 100% margin, TFT, Stage IV possible directly | Weekly (min 90 days) |
| ST-ASM | Stocks with short-term abnormal price rise | 4 criteria — short period price movements | 100% margin (or existing, higher) | Quarterly/weekly |
| Pledge/Encumbrance | High promoter pledge or encumbrance stocks | SAST Reg 28(3) disclosures + monitoring | Enhanced surveillance; additional margin | Ongoing |
| OTR/RTCM/Spoofing | Trading members with manipulative order patterns | High OTR, reversal trades, spoofing patterns | ASM penalties, trade cancellation, surveillance margin | Continuous (intraday) |
📊 Section 13 — Impact Analysis: Who Is Affected and How
👤 For Retail Investors
- Cautionary messages protect against trading in manipulated/weak stocks
- ESM/GSM lists are publicly available on exchange websites — use them before investing in small-cap stocks
- Algo trading safeguards protect against third-party algo platform risks
🏢 For Listed Companies
- GSM/ESM inclusion is not a regulatory action against the company — but stock liquidity is severely restricted
- Companies with weak financials must be aware of GSM triggers — improve fundamentals
- PSU companies were extended coverage under GSM, ESM, and related surveillance measures through joint surveillance decisions
🏦 For Stock Brokers / Trading Members
- Mandatory quarterly surveillance reports to exchanges
- Strict penalties on client code modifications, high OTR, spoofing
- Must display cautionary messages on terminals for surveilled stocks
- Broker-level institutional mechanism for fraud detection is mandatory
⚖️ For Compliance Officers
- Personal liability for PIT disclosure failures by insiders
- Must monitor insider trading compliance rigorously — including for promoters' derivative trades
- Ensure Code of Conduct (CoC) violations are reported to SEBI/exchanges
- Penalties under SEBI Act + IPEF crediting for non-compliance
📝 Conclusion
Key Takeaways
SEBI's Master Circular on Surveillance is the consolidated reference document for market-surveillance compliance in India.
🔍
7 frameworks consolidated — PCAS, GSM, ESM, LT-ASM, ST-ASM, Promoter, and Trading Member surveillance
📊
PSUs now covered under GSM and ESM — a significant expansion of surveillance scope
⚖️
Compliance Officer personal liability for PIT violations — a critical accountability provision
This Master Circular is effective immediately from May 15, 2026. All intermediaries, listed companies, and market participants should review their compliance frameworks against this consolidated document without delay.
❓ Frequently Asked Questions
Source: SEBI Master Circular on Surveillance of Securities Market, dated May 15, 2026, issued by SEBI's Integrated Surveillance Department. Available at sebi.gov.in. Reference data from NSE Consolidated Surveillance & Investigation Circular (NSE/SURV/74008 dated April 30, 2026). For more regulatory updates, visit corplawupdates.in. This article is for informational and educational purposes only and does not constitute legal advice.
