Circuit breakers which brings about a coordinated trading halt in all equity and equity derivative markets nationwide and are applicable for the whole market. These circuit breakers are set to be triggered at an unprecedented move in the index which may be caused due to some panic or a political upheaval.
These index-based market-wide circuit breaker system is implemented on a quarterly basis and reviewed at beginning of a quarter. Percentages are calculated on the closing index value of the quarter. These are translated into absolute points of index variations (rounded off to the nearest 25 points in case of the Sensex).
It has three stages of the index movement as listed below:
- 10 percent
- 15 percent
- 20 percent.
10 Percent Circuit Breaker
- In case of a 10 percent movement of either of these indices, there would be a one-hour market halt if the movement takes place before 1 pm.
- In case the movement takes place at or after 1 pm, but before 2.30 pm, there will be a trading halt for half an hour. In case the movement takes place at or after 2.30 pm, there will be no trading halt at the 10 percent level and the market will continue trading.
15 Percent Circuit Breaker
- In case of a 15 percent movement of either index, there will be a two-hour market halt if the movement takes place before 1 pm.
- If the 15 percent trigger is reached on or after 1 pm, but before 2 pm, there will be a one-hour halt.
- If the 15 percent trigger is reached on or after 2 pm, trading will halt for the remainder of the day.
20 Percent Circuit Breaker
In case of a 20 percent movement of the index, the trading will be halted for the remainder of the day.
This is a good control mechanism and can help more when the panic is set in the market as it will be a very rare scenario when market will rise high by 10% or more in a single day and because of that trading is halted. This helps more in case of sudden fall in the market as panic spreads like a wild fire and thus market drops like a thud. It gives some time for the Finance Minister or SEBI to come out and give some statement in public which will soothe the nerves of traders and investors.