The National Stock Exchange (NSE) late on March 19, 2023 issued a three-page statement to assert that its surveillance actions on individual stocks and decisions to include or exclude stocks in various Nifty indices are driven by “transparent” policies and rules without “human discretion”.
The statement comes two days after the exchange removed three Adani group stocks, including its flagship Adani Enterprises, from its short-term additional surveillance framework. Stocks are put under the additional surveillance framework by exchanges to safeguard investors amid high volatility.
Also read: Congress flags SEBI’s silence over NSE stance on Adani group stocks
The NSE statement also sought to defend its subsidiary NSE Indices’ decisions and said there was “no human discretion in deciding on inclusion or exclusion of stocks in any of if [sic] its indices”. Last month, the subsidiary had announced the addition of five Adani group firms into 14 of its indices, effective March 30, while retaining Adani Enterprises and Adani Ports and SEZ in its flagship Nifty 50 index.
While the reconstitution of the indices was based on trading data for the six month-period ending January 31, financial experts had sought a review of the move to protect investor interest in the midst of the meltdown in the group’s stocks since January 24, when US-based Hindenburg Research released a report alleging several misdemeanours by the group.
“NSE surveillance actions on eligible stocks are applicable as per transparent rules. These rules are non-discretionary, pre-announced and automatically applicable,” the exchange said, adding the norms are in the public domain, “common across exchanges” and are “implemented automatically and no human discretion is allowed”.
The exchange also underlined that “the overall Risk Management Framework put in place for trading in secondary market has been designed to provide robustness to capital market ecosystem, especially in volatile times.”
“Similarly, inclusion and exclusion of stocks in various Nifty indices on periodic basis has been as per transparent policies. All Nifty indices are maintained by NSE Indices and are based on index methodologies that are objective, non-discretionary, rules based, pre-announced and transparent,” the exchange said.
Asserting that the subsidiary follows “a strong index governance practise through various governance committees to monitor index criteria policy changes or policies related to index constituent changes”, the NSE said these committees also include external independent members. “All changes in policies relating to constituents of any indices are approved by such index governance committees. The rules are applied automatically without human discretion,” it added.
“Thus given the current pre-announced, transparent, rules based, automatic, non discretionary regulatory framework for surveillance measures and for index inclusion/ exclusion at NSE, no human discretion is possible for any one and this entire process and practice has been running for decades,” the NSE underlined.
Late last month, the Congress had protested outside the NSE headquarters against the move to include and retain Adani group stocks in its indices, thus directing small investors’ index fund investments into these stocks. On Friday again, the Congress had questioned market regulator SEBI’s silence on NSE’s decisions, including the move to remove the firm’s stocks from the additional surveillance framework.