The Graded Surveillance Measure (GSM) is a framework under which exchanges and the market regulator, the Securities and Exchange Board of India (SEBI), apply progressively stricter trading restrictions on stocks whose market price looks out of line with the company's actual financial health, typically very low-priced shares of companies with little revenue, weak books, or negligible business activity. It is the strictest of the surveillance measures, because these are exactly the stocks most often used for manipulation.
Which stocks end up in GSM?
While ASM reacts to how a stock is trading, GSM reacts to what the company is. Exchanges screen listed companies against fundamental yardsticks, earnings, net worth, the size of the business relative to its market price. A company that has almost no operations but whose stock keeps ticking upward is a classic GSM candidate.
Many GSM stocks are penny stocks, very cheap shares that look like bargains but carry outsized risk. If that category is new to you, read What are penny stocks, and why are they risky? first; GSM exists largely because of how often such stocks are used to trap retail buyers.
What does "graded" mean here?
GSM is a ladder. A stock enters at the first stage and moves up the grades if the worrying pattern continues. Each grade adds friction:
| Grade (concept) | What it feels like for a trader |
|---|---|
| Early stage | Trades must be settled by delivery. The stock behaves like a Trade-to-Trade (T2T) stock |
| Middle stages | Buyers must also park an extra deposit with the exchange for a period. "trade with deposit" |
| Highest stages | Trading is allowed only occasionally, through periodic auctions, instead of continuously |
The exact number of stages, the deposit amounts, and the trading frequency at each grade are set by the exchanges and revised from time to time. The shape of the ladder is what you need to understand, not the current rung labels.
What does this look like in practice?
Ramesh spots Himalaya Agro trading at ₹4 and thinks, "It only has to reach ₹8 and I double my money." He tries to buy 10,000 shares. If the stock is in a middle GSM grade, his buy will require not just the ₹40,000 for the shares but an additional surveillance deposit on top, blocked for a set period. If it's in a top grade, he may find he can only trade it on specific days through an auction.
Every one of those hurdles is a message from the exchange: this stock's price is not supported by a real business. Are you sure? Plenty of buyers who would have chased the stock walk away at that point, which is precisely the protection working.
Is a GSM stock always a fraud?
Not necessarily, but the base rates are unfriendly. GSM stocks are, by the framework's own design, companies whose fundamentals don't justify their price action. Some clean up their act and exit the list after review; many drift toward suspension or delisting. If you already hold a stock that enters GSM, you can still sell it, but expect thin buying interest, since the restrictions deter fresh buyers too.
Things to keep in mind
- GSM targets weak-fundamental, usually low-priced stocks; a low share price is not "cheap". Check what the business actually earns.
- Restrictions escalate by grade: delivery-only first, then deposits, then trading only in periodic auctions at the top of the ladder.
- Stage criteria, deposit percentages, and review timelines are exchange-set and change; always check the exchange's current GSM list before trading such a stock.
- You can sell a holding that enters GSM, but liquidity often dries up. Getting out at your preferred price may be hard.
Read next
What is the Additional Surveillance Measure (ASM)? — A second, triggered by unusual price and volume behaviour.