Circuit Filters and Trading Bands in Stock Market

Understand What are Circuit Filters and Trading Bands in Stock Market.

Circuit Filters and Trading Bands in Stock Market are a Set of Rules imposed by SEBI (Securities and Exchange Board of India) to check the volatility of shares and to determine the fixed price bands for different securities within which they fluctuate in a day. Let us understand in some detail.

What are Circuit Filters in Share Trading?

Circuit Filters are price bands set by SEBI control the fluctuation (up or down) of securities listed in Stock Market in India. The purpose is to control any possible manipulation that can be done in share prices by operators. These guidelines prevent a sharp fall or rise in stock prices and protect the interest of investors.

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Example:

If share price of Rs. 100 each with circuit breaker of 10%, it will stop trading if the share price rises to or above Rs. 110 (Upper End Circuit Filter is applied). Similarly, trading will get suspended if the stock price falls below Rs. 90 (Lower End Circuit Filter is applied).

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What are Trading Bands?

Trading brands, also called Envelopes, are Moving Averages – Upward and Moving Average and Downward Moving Average.

• Also Read: What is Rolling Settlement Cycle in Stock Market?

SEBI Directives for Circuit Filters And Trading Bands

As per SEBI Directive:-

1. All securities traded at or above Rs.10/- and below Rs.20/- have a daily price band of ± 25%.
2. All securities traded below Rs. 10/- have a daily price band of ± 50%.
3. Price band for all securities traded at or above Rs. 20/- has a daily price band of ± 8%.

For selected 100 scrips, the price bands have been relaxed to ± 8% after a cooling period of half an hour. The base price to calculate the prices is the previous day’s closing price of the scrip.

Here, it has to be noted that the closing price on BSE and NSE can be different, hence the circuit limit for a share on BSE and NSE can be different.

• Also Read: What is Margin Trading in Share Market?

Circuits Limit for Stock Exchanges

There are 3 circuit filters for indices – 10%, 15% and 20%. These filters are applied to both Sensex or Nifty whichever crosses the limit first. The trigger also depends on the time at which it takes place.

Drift	Timing	Halt
10%	Before 1:00 p.m	60 Minutes (1 Hour)
	1:00 to 2:30 p.m	30 Minutes (Half an Hour)
	After 2:30 p.m	No Halt
15%	Before 1:00 p.m	120 Minutes (2 Hours)
	1:00 to 2:00 p.m	60 Minutes (1 Hour)
	After 2:00 p.m	No Halt
20%		Trading is halt for the rest of the day. In case of liquid scrips, circuit filters are reduced to 10% or 5% or 2% depending of the criteria set by the stock exchanges. No circuit filters are applied on scrips in which derivative products are available. Dummy circuit filters are applied to avoid purchasing errors.

FAQs: Circuit Filters and Trading Bands in Stock Market

Conclusion

To summarize, we can say that Circuit Filters and Trading Bands in Stock Market are a set of Rules set by SEBI to control Too much Fluctuation of Share Prices and Protect the Interests of Investors.

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