Circuit Limits For Indices To Be Revised Daily

The SEBI has issued a circular to all the stock exchanges saying it has partially modified the system of index based market wide circuit breaker. Accordingly, all stock exchanges are directed to take necessary steps and put in place necessary systems for implementation of the provisions with effect from October 01, 2013.

Circuit limits are defined as the quantum of the permissible movement allowed in an index. If trading foes beyond these limits in a single day, trading is halted. Currently stock exchanges fix 10%, 15% and 20% swing limits for indices, based on closing price on a quarterly basis. In accordance with this, circuit breakers would be set as per the level seen on June 30, 2013.

However, on account of increased volatility in the markets, and on recommendations of Secondary Market Advisory Committee, it has been decided to revise the index based market-wide circuit breaker on a daily basis. The index variation limit would thus be based on the previous day’s closing level of the index.

While the 10% and 15% limits would result in temporary trading halts, a 20% limit triggers a halt in trading for the entire day.

If a 10% limit is breached before 1 pm, trading would be halted for one hour. If it is breached between 1 pm and 2:30 pm, trading would be halted for 30 minutes. After 2:30 pm, this would result in no halt in trading.

In case of a 15% limit being breached before 1 pm, trading would pause for two hours. In case of the even occurring between 1 pm and 2 pm, trading would halt for one hour. Post 2 pm, trading would be halted for the day if the 15% limit is breached.

Trading would be halted for the remaining day if a limit of 20% is broken on the index.

For example, currently if the Sensex closed at 19385.81 on June 30, 2013, the 10% limit for the July to September quarter would be set at 1939. So if the movement in the Sensex is more or less than 1939, trading would stop (or not) in accordance to the above rules.

If the Sensex is on a downward trend and reaches a hypothetical value of 16000, the previous rule would allow for an intraday movement of 1939 while the new rules would restrict it to 1600 for the next day, thus making the situation better.