Here are few things to know about circuit filters:
What is Circuit Filter ?
It is a range provided for each index/stocks. It contains an upper limit and a lower circuit limit. These limits are based on the previous day’s closing price. Circuit limits are just for indices; stocks have price bands.
However, price bands are only available for stocks which have no derivative contracts.Also, price bands are controlled by the stock exchange, while circuit filters are set by SEBI.
Why do we have such limits ?
These are the measures taken by the Exchanges to safeguards the traders/investors to prevent any large moves in the stock/index in a very short time.
Also, if you place orders out of the price band will be rejected by the broker. Before placing the limit orders, Know the Circuit limit for the stocks.
Circuit limits curbs the excessive volatility of a stock in the event of any news positively & negatively.
Circuit breakers were set in after the Back Monday crash of 1987 in US stock markets.
What if it reaches any limit ?
If Index or stock touches any of the upper or lower limits, trading will be suspended.
The amount of time for which trading is stopped depends on the extent of breach. The greater the change in prices, the longer the halt.
The Sebi has set circuit breaker limits at 10%, 15% and 20% for the indices and for the securities price bands are set at 2% , 5% , 10% ,15% and 20%.
Check out the NSE Daily Price Bands here.
The market shall re-open, after index based market-wide circuit filter breach, with a pre-open call auction session.
| Trigger limit | Trigger time | Market halt duration | Pre-open call auction session post market halt |
|---|---|---|---|
| 10% | Before 1:00 pm. | 45 Minutes | 15 Minutes |
| At or after 1:00 pm upto 2.30 pm | 15 Minutes | 15 Minutes | |
| At or after 2.30 pm | No halt | Not applicable | |
| 15% | Before 1 pm | 1 hour 45 minutes | 15 Minutes |
| At or after 1:00 pm before 2:00 pm | 45 Minutes | 15 Minutes | |
| On or after 2:00 pm | Remainder of the day | Not applicable | |
| 20% | Any time during market hours | Remainder of the day | Not applicable |
Source: NSE Circuit Breakers
How Circuit limits are applicable for F&O Stocks ?
No price bands are applicable on scrips on which derivative products are available. In order to prevent traders/investors from entering orders at non-genuine prices in such securities, the Exchange has fixed operating range of 10%. So if the stock hits the circuit level at any side of 10%, then in matter of minutes, the circuit limit of the stock is increased by 5%. So the stock circuits increased as 10%, 15%, 20%, 25%, etc and so on. This is how F&O Stocks circuits are applied.
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Past Circuit Breaking events
- On 23rd March 2020, Sexsex lost 2,991 points or 10% at 9: 58 am & Nifty plunged 9.40% or 822 points to 7,923 at the same time hits a lower circuit breaker & trading was halted on both NSE & BSE for 45 minutes.
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- On 13th March 2020, Nifty tanked 10.07% or 966 points to 8,625 at 9:20 am after which trading was halted for 45 minutes.
- May 18th, 2009- Market hits 2 upper circuits in one day as UPA win over election.
- 21st January 2008 – Sexsex tanks 10% due to Global Recession and trading suspended.
- 17th October 2007 – Trading halted as market hits lower circuit breaker due to tightening of participatory notes.
- On 22nd May 2006 , Lower Circuit breaker due to Speculation over Payment crisis.
- On 17th May 2004, Lower circuit as NDA loses the election.
