Friday's crash brought a circuit breaker/filter for Indian market after Nifty plunged 10.07% or 966 points to 8,625. Similarly, trading was halted for 45 minutes on Sensex at 9:20 am after the index plunged 3,090 points or 9.43% in early trade.
This is the first time in 12 years trading in Indian markets had to be halted. Trading resumed at 10:20 am after a 15-minute pre-opening trade with Sensex and Nifty staging a smart recovery. At 10:55 am, Sensex was trading 110 points lower at 32,667 and Nifty was down just 96 points at 9,503 in volatile trade. The imposition of 10% circuit breaker by regulator Sebi and stock exchanges seems to have led to the market recovery.
Here's a look at rules for the circuit breaker which Sebi has announced for the stock market.
In 2001, Sebi introduced circuit breakers in the stock market to protect the wealth of retail investors. As per the notification, circuit breaker system applies at three stages of the index movement, either way at 10%, 15% and 20%.
Additionally, a 15-minute pre opening session post each trading halt was introduced.
Triggering of these circuit breakers brings about a coordinated trading halt in all equity and equity derivative markets nationwide.
The market-wide circuit breakers are triggered by movement of either the BSE Sensex or the NSE Nifty, whichever is breached earlier.
BSE and NSE calculate the three index breaker limits on a daily basis based on the previous day's closing level of the index rounded off to the nearest tick size.
For example, Nifty plunged 10.07% in early trade today which led to introduction of circuit breaker on the downside. Trading was halted for 45 minutes on Nifty immediately. Trading on Sensex also came to a sudden pause as both indices have a large number of stocks in common.