1.5 Price bands, circuit filters and market-wide circuit breakers
Motivation
Exchanges limit how far prices can move in a day, both per stock and for the whole market. These limits change the distribution of returns at the tails, and they decide whether you can exit a position at all on a crash day.
1.5.1Limits on single stocks#
Stock-level price bands Stocks without derivatives have daily bands of 2%, 5%, 10% or 20% from the previous close, assigned by the exchange. Orders priced outside the band are rejected. A stock "locked at upper circuit" has only buyers at the band; you cannot buy it, and a short seller cannot cover. Stocks with derivatives have no fixed band. They have dynamic price bands (initially 10%) that the exchange can widen in steps when trading presses against them (secondary summaries; NSE's page was not reachable during research, so verify with the exchange).
1.5.2Index-level halts#
Index-based market-wide circuit breakers (MWCB) Introduced by SEBI circular of June 2001, effective 2 Jul 2001. The trigger is a fall or rise of the Nifty 50 or the Sensex, whichever breaches first, measured from the previous close. Levels are fixed daily (as reported by secondary summaries of the SEBI circular and its amendments; verify with the exchange):
| Move | Hit before 13:00 | 13:00–14:00 | 14:00–14:30 | After 14:30 |
|---|---|---|---|---|
| 10% | 1 h halt | 30 min | 30 min | no halt |
| 15% | 2 h | 1 h | rest of day | rest of day |
| 20% | rest of day | rest of day | rest of day | rest of day |
Halt durations are reported to include a 15-minute pre-open call auction on reopening; so a "1-hour" halt is 45 minutes of no trading plus 15 minutes of call auction. That matches the 45-minute halts on 13 Mar 2020 and 23 Mar 2020, when the 10% lower circuit was hit at the open (Business Standard live reports of both days).
Worked exampletrigger levels
On 4 Jun 2024 the Nifty's previous close was 23,263.90 (21,884.50 close plus the reported 1,379.40-point fall). The lower triggers were therefore about 20,937.5 (−10%), 19,774.3 (−15%) and 18,611.1 (−20%). The reported intraday low of about 21,281 was a fall of 8.5%, roughly 344 points above the first trigger. Trading continued.
Practitioner notes
- Circuits truncate the observed return distribution but not the economic one. If a stock is locked at its lower band for three days, its "daily returns" are −5%, −5%, −5%; the price at which you could actually have sold is unknown. Backtests on small caps that assume fills at limit-locked prices are wrong.
- An MWCB halt stops new trading, but your margin obligations continue, and the reopening auction can open far from the trigger level.
- F&O stocks have dynamic bands precisely because their derivative prices must be able to move; a fixed band in the cash market would break the arbitrage link to futures.