Circuit Limit/Breaker System in Stock Market

Article by - Nitesh Panchal

SEBI has a rule called Circuit Breaker in Stock Market for both Index and Stock specific Circuit Limits. The Circuit filter limit is introduced in intention to reduce the speculations in the market and stock specific trading. There will be two ways a circuit filter applied, upper circuit filter and lower circuit filter. So when buying stocks in the current stock markets you must first learn about the stock market and know the stock market prices and then consider online trading stocks.

Index specific Circuit Filter

Index specific circuit filter applied to either BSE Sensex or the NSE S&P CNX Nifty whichever is breached earlier. Now there are three filters for Index based circuit viz 10%, 15% and 20%.

If either BSE Sensex or NSE S&P CNX Nifty falls 10% before 1.00pm then trading halts for one hour in the market. If index drops after 1.00pm but before 2.30 pm then trading halts for half hour. If the index drops after 2.30pm then there will be no halt for trading at 10% level and market shall continue trading for the remaining time.

If either BSE Sensex or NSE S&P CNX Nifty falls 15% before 1.00pm then trading halts for two hour in the market. If index drops after 1.00pm but before 2.00 pm then trading halts for one hour. If the index drops on or after 2.00pm then there will be no trading for the remaining time.

In case of 20% drop in either of the index then the trading halts for the remaining day.

This percentage of circuit filters are revised after every quarter and new percentages are arrived for the next quarter.

Stock specific Circuit Filter

Stock specific circuit filters are applied in both BSE and NSE index, the percentage for circuit filter limit is 2%, 5%, 10%, 20%. When a stock is on upper circuit limit then there will be only buyers in the market and no seller exists and hence the price is up. On the other hand lower circuit limit is when there are only sellers in the market for that stock and hence the stock price is down.