Circuit breaker
Also written Market-wide circuit breaker
A pre-set percentage move in a stock or index that triggers an automatic halt or limit in trading, giving the market time to assess instead of trading on panic.
In plain language
When prices move violently, people stop thinking. Sellers dump because others are dumping. A circuit breaker forces a pause.
The exchange sets limits in advance. If a stock or index moves by more than that percentage, trading stops or is capped. The workbook gives the reason: to let market players assess the situation instead of putting through panic-driven transactions that push prices too far — which could lead to a payment crisis at settlement.
How it works
Two levels (section 4.5.5).
For individual stocks — price bands. Daily price bands are fixed at 2, 5, 10 or 20 per cent, depending on liquidity, volatility and trading activity. The exchange can narrow a band to contain speculation. Stocks traded in the derivatives market have no price band, though an operating range prevents erroneous entries; stocks without their own derivatives but in an index on which derivatives trade also get appropriate bands.
For the whole market — market-wide circuit breakers. Triggered by the movement of either the BSE Sensex or the Nifty 50, whichever is breached earlier. All trading in equity and equity derivatives halts. Limits are calculated daily from the previous day's closing index level, rounded to the nearest tick. The market reopens with a pre-open call auction.
| Index move | When | Halt | Pre-open call auction |
|---|---|---|---|
| 10% | Before 1 pm | 45 minutes | 15 minutes |
| 1 pm up to 2.30 pm | 15 minutes | 15 minutes | |
| At or after 2.30 pm | No halt | — | |
| 15% | Before 1 pm | 1 hour 45 minutes | 15 minutes |
| 1 pm to before 2 pm | 45 minutes | 15 minutes | |
| On or after 2 pm | Rest of the day | — | |
| 20% | Any time | Rest of the day | — |
Surveillance can also reduce circuit filter limits on particular scrips (section 4.9.5).
A worked example
Illustrative index level. The Nifty 50 closed yesterday at 24,000.
10% trigger = 24,000 × 0.90 = 21,600
15% trigger = 24,000 × 0.85 = 20,400
20% trigger = 24,000 × 0.80 = 19,200
Case 1. The index hits 21,600 at 11.30 am. Trading halts for 45 minutes, then a 15-minute pre-open call auction — normal trading resumes around 12.30 pm.
Case 2. The same 10 per cent fall comes at 1.30 pm. Halt of 15 minutes plus 15 minutes of call auction — trading resumes around 2.00 pm.
Case 3. The 10 per cent fall comes at 2.45 pm. No halt.
Case 4. Trading resumes after Case 2 and the fall deepens to 20,400 — 15 per cent — at 2.10 pm. Trading stops for the rest of the day.
A single stock. A share in the 5 per cent band closed at Rs 400: it can trade only between Rs 380 and Rs 420 today. A share with derivatives on it has no such band.
Why NISM asks about it
Chapter 4 (Secondary Markets), section 4.5.5, with Table 4.1, plus section 4.9.5 on price monitoring; the definition appears in the workbook glossary. Expect the stock price-band percentages, the "Sensex or Nifty, whichever is breached earlier" rule, and table look-ups combining percentage and time.
Common exam traps
- The table is keyed to both percentage and time of day — a 10 per cent fall at 2.45 pm causes no halt; a 15 per cent fall after 2 pm stops trading for the day.
- Stocks in the derivatives segment have no price band — only an operating range against erroneous orders.
- Market-wide breakers use Sensex or Nifty, whichever is breached first, and halt equity and equity derivatives.
- Limits are recomputed daily from the previous close.
- Up or down? The workbook's text says market-wide breakers are triggered by index movements "(either way)" and that circuit breakers act "in the upward or downward direction", while Table 4.1 is framed in terms of a decline. Learn the table as written, and do not assume a breaker only ever fires on a fall.
- After a halt, the market reopens through a pre-open call auction, not straight into continuous trading.
Where this is taught
- Series X-A · Chapter 6: Securities Market Segmentsintroduced here
- Series XII · Chapter 4: Secondary Marketsintroduced here
Related terms
- Block dealA single large trade of at least Rs 25 crore, executed in a special exchange window within 3 per cent of a reference price, settled by delivery and disclosed after market hours.
- Extreme Loss MarginA flat 3.5 per cent margin collected on cash-market positions to cover losses falling outside what the VaR margin is designed to capture.
- Price bandThe highest and lowest price at which a contract may trade on a given day, set as a percentage of its base price to block erroneous and manipulative orders.
- Daily Price LimitThe band around the previous close within which a contract may trade during a day — a circuit filter that caps volatility, imposes a cooling-off pause, and can halt the contract for the session.
- Trade annulmentA trading member's request, made within 30 minutes of trade execution, to cancel a trade already matched on the exchange — accepted only if it meets set conditions, and charged an annulment fee.
- MarginThe money a buyer or seller must deposit before a trade is allowed to stand, so that the clearing corporation is covered if they fail to bring in funds or to deliver securities.
- Co-locationA stock exchange facility, offered to trading members for a fee, to place their computer servers in the same premises as the exchange's servers so their orders reach the exchange faster.
- Bulk dealAll transactions in a listed stock where the total quantity bought or sold exceeds 0.50 per cent of the company's listed equity shares — in one trade or several in a day — reported and disclosed the same day.