Capital Markets: Challenges and Developments

The circuit breaker in the stock market

The stock markets in India are witnessing historic single-day falls with an increase in the number of COVID-19 cases.  Since the indexes plunged more than 10 per cent each day earlier, a circuit breaker was triggered for the first time since 2009 halting trading.

What are circuit breakers?

  • In June 2001, the SEBI implemented index-based market-wide circuit breakers.
  • Circuit breakers are triggered to prevent markets from crashing, which happens when market participants start to panic induced by fears that their stocks are overvalued and decide to sell their stocks.
  • This index-based market-wide circuit breaker system applies at three stages of the index movement, at 10, 15 and 20 per cent.
  • When triggered, these circuit breakers bring about a coordinated trading halt in all equity and equity derivative markets nationwide.

 

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