Circuit Breaker

A circuit breaker is a regulatory mechanism that temporarily halts trading on a stock exchange when prices move beyond predefined limits. In India, circuit breakers operate at two levels: index-level (market-wide) and stock-level (individual security).

Market-wide circuit breakers on the NSE and BSE are triggered when the Sensex or Nifty moves by 10%, 15%, or 20% from the previous day's close. At 10%, trading halts for 45 minutes (if triggered before 1 PM), 15 minutes (if between 1-2:30 PM), or no halt (if after 2:30 PM). At 15%, the halt is 1 hour 45 minutes (before 1 PM), 45 minutes (1-2 PM), or remainder of the day (after 2 PM). At 20%, trading is halted for the remainder of the day regardless of time.

Stock-level circuit breakers are called "price bands." SEBI assigns daily price bands of 2%, 5%, 10%, or 20% to individual stocks based on their liquidity and past volatility. Nifty 50 constituents in the equity segment do not have price bands (since they have F&O contracts which serve as a natural brake), but they do have operating range limits of 10% in the F&O segment.

Notable circuit breaker events in Indian markets include 23 March 2020, when the Nifty hit the lower circuit of 10% within minutes of market open due to COVID panic. Trading was halted, and after resumption, the index fell further. The March 2020 crash triggered multiple circuit breaker events across several trading sessions.

Circuit breakers serve an important market function — they provide a cooling-off period during extreme panic or euphoria, allowing traders to reassess positions and reducing the risk of cascading liquidations. However, critics argue that circuit limits can trap investors who want to exit, as stocks hitting the lower circuit often have zero bid (no buyers), making it impossible to sell. This is particularly problematic for small-cap stocks that hit lower circuit for multiple consecutive sessions.