Circuit Breaker: The Halts That Stop a Falling Market

A circuit breaker is a rule that pauses or limits trading when prices move too far, too fast, giving investors time to absorb new information before orders are matched again. In India, the rule works at two levels, one for the whole market and one for each stock.

For investors asking what is circuit breaker in stock market, the first level is a halt on all equity and equity derivatives trading when the Nifty 50 or Sensex moves 10%, 15% or 20% in either direction, whichever index breaches first.

The second level is a daily price band of 2%, 5%, 10% or 20% that the exchanges set for individual stocks.

Index halt triggers and daily stock price bands

The exchange works out the limits every day from the previous closing level of the index. If Nifty 50 had closed at 20,000, a move of 2,000 points would trigger the first level.

At the first level, a move before 1 pm halts trading for 45 minutes, and a move between 1 pm and 2:30 pm halts it for 15 minutes, with no halt after that. At the second level, the halt is 1 hour 45 minutes before 1 pm, 45 minutes until 2 pm, and the rest of the day after that. The third level stops trading for the day at any time. Each halt ends with a 15-minute pre-open call auction.

Stock bands are counted from the previous close and depend on the volatility of the stock. Stocks with futures and options contracts have no fixed band. Bands are revised periodically, and stocks under surveillance may carry tighter bands.

Halts versus stock circuits: what each one stops

During a halt, orders may not execute, and exits can be blocked until trading resumes. The rules are set by SEBI and the exchanges, not by the brokers.

The halt depends on an index and covers all trading, while a circuit depends on one stock's price. A stock hitting its own upper or lower circuit does not stop market, and a market halt does not change any stock's band.