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SEBI tweaks circuit breaker rules for stock exchanges

04 Sep 2013 Evaluate

In view of the recent volatility in the stock market, the Securities and Exchange Board of India (SEBI) has asked exchanges to calculate circuit limits, the maximum permissible movement allowed to Sensex or Nifty in a trading session on a daily basis, thereby departing from the current practice of calculating the same on a quarterly basis.

Currently the stock exchanges calculate the circuit filters on the basis of the level attained by Sensex and Nifty at the end of every quarter and the same limits are applicable for every day of trade for the next three months. Under the current rules, a circuit filter is triggered if either of the Sensex or the Nifty moves 10%, 15% or 20% in either direction.

The new mechanism would apply for 10%, 15% and 20% circuit limits in Sensex and Nifty, the two benchmark indices of Indian stock market, with effect from October 1, 2013. Further, the circuit breaker limits of market-wide index variation will be based on the previous day’s closing level of the index. Under the new rules, if the 10% circuit filter is hit, there is a one hour halt of trading before it resumes. If the 15% circuit filter is triggered, then there would be a two-hour trading halt. At the 20% filter, trading will stop for the day.

Further, the regulator has directed that in case the circuit filter is hit, there would be a pre-opening trading session (called call-auction session in market parlance) of 15 minutes. Post to which only, the regular trading should resume.

As per the market regulator, circuit filters would act like a cushion to halt trading on stock exchanges in a coordinated manner in times of excess volatility, which will lend the market some time to take stock of the situation and then resume trading.

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