What is circuit breaker in stock market? – Economic Times

Trading on the bourses halted for 45 minutes on Friday after benchmark indices tanked. NSE Nifty plunged 10.07 per cent or 966 points to 8,624 and BSE flagship Sensex tanked 3,090 points or 9.43 per cent to 29,687.

Here is all you need to know about circuit limits:

1. What is a lower or upper circuit?
   Lower or upper circuit is an automatic mechanism to stop a freefall or massive surge in a security or an index during trading hours. It is used to check the volatile swings in the market.
2. When is circuit used?
   The index-based market-wide circuit breaker system applies at three stages of the index movement, either way at 10 per cent, 15 per cent and 20 per cent. These circuit breakers when triggered bring about a coordinated trading halt in all equity and equity derivative markets nationwide. The market-wide circuit breakers are triggered by movement of either the BSE Sensex or the Nifty 50, whichever is breached earlier.
3. What is the duration of halt in trade?
   It depends on the time of the breach and the quantum of fall. Trade could be halted for 15 minutes up to the whole day. A detailed mechanism is as followed: 10% trigger limit: If this limit is breached before 1 pm, trade is halted for 45 minutes. If the same is breached between 1 pm to 2.30 pm, trade is halted for 15 minutes. After 2.30 pm, there is no halt in trading. 15% trigger limit: If this limit is breached before 1 pm, trade is halted for 1 hour 45 minutes. If the same is breached between 1 pm to 2.30 pm, trade is halted for 45 minutes. After 2.30 pm, trade is halted for the remainder of the day. 20% trigger limit: If this limit is breached any time during trading hours, trading is halted for the remainder of the day.
4. What happens after the halt duration is over?
   After the circuit is breached, trading is halted as mentioned above. The market re-opens, after index based market-wide circuit filter breach, with a pre-open call auction session of 15 minutes post the duration of halt. The normal trading could begin and continue as long as the next circuit limit does not activate.
5. Why is circuit limit used?
   The circuit levels are determined by the stock exchanges so as to protect investors and brokers from an unwanted surprise moment. In case of a sudden swing investors tend to lose a massive chunk of their capital. Even traders may have to face margin calls from their brokers in case market plunges or surges too much.