In an attempt to curb volatility, SEBI has modified the limits of the circuit filter of indices, which will now be calculated on a daily basis instead of on a quarterly basis

Market regulator Securities Exchange Board of India (SEBI), has modified the circuit filter mechanisms for stock exchanges, particularly the BSE and National Stock Exchange (NSE). The move is aimed to supposedly contain volatility. The SEBI circular (CIR/MRD/DP/25/2013), issued on 3rd September, stated: “The stock exchange on a daily basis shall translate the 10%, 15% and 20% circuit breaker limits of market-wide index variation based on the previous day's closing level of the index.” The new rule is expected to come to effect from 1st October.
 

Earlier, the circuit filter levels were decided on a quarterly basis, while the percentage levels remains the same at 10%, 15% and 20% of the market-wide index variation. When the circuit filter is activated, the market comes to a halt depending on which band is activated (i.e. 10%, 15% or 20%), but this time the duration of the halt has been reduced by 15 minutes for each of the respective percentage levels. After that, there will be a pre-open call auction session in the cash segment of the exchanges.
 

The circular said, “Post-observation of the trading halt, stock exchange shall resume trading in the cash market with a 15 minutes pre-open call auction session. In order to accommodate such pre-open call auction session, the extent of duration of the market halt prescribed vide SEBI circular 28 June 2001 shall be suitably reduced by 15 minutes.”
 

According to SEBI’s old circular (SMDRPD/Policy/Cir-37 /2001, dated 28 June 2001), the duration of the halt are listed below. However, the duration of halt for each band is expected to be reduced by 15 minutes post 1^st October.
 

• • In case of a 10% movement of either of these indices, there would be a 1 hour market halt (expected to be 45 minutes, post 1st October) 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 30 minutes (expected to be 15 minutes, post 1st October). In case the movement takes place at or after 2:30 pm, there will be no trading halt at the 10% level and the market will continue trading.
   
• • In case of a 15% movement of either index, there will be a 2 hour halt (expected to be 1 hour and 45 minutes, post 1st October) if the movement takes place before 1 pm. If the 15% trigger is reached on or after 1 pm but before 2 pm, there will be a 1-hour halt (expected to be 45 minutes, post 1st October). If the 15% trigger is reached on or after 2 pm, the trading will halt for the remainder of the day.
   
• • In case of a 20% movement of the index, the trading will be halted for the remainder of the day. (It is not clear if there will be trading for this band, or whether there will be a 15 minute trading window)
   

The circular was issued after taking into the consideration of the recommendations of Secondary Market Advisory Committee (SMAC).