Circuit Breaker is the mechanism which is triggered when the price fluctuation moves beyond a threshold value stipulated by the stock exchange. Once, the index hits circuit breaker, trading in the entire market gets suspended for a period of time, or trades will only be conducted within the stipulated threshold. This is done to bring normalcy in the stock markets at times when the index moves beyond reasonable limits.
The index-based market-wide circuit breaker system applies at three stages of the index movement, either way, i.e. at 10 per cent, 15 per cent and 20 per cent. These circuit breakers when triggered bring about a coordinated trading halt in all equity and equity derivative markets nationwide. The market-wide circuit breakers are triggered by the movement of either the BSE Sensex or the Nifty50, whichever is breached earlier, explains National Stock Exchange (NSE).
As per the Sebi rules, if the index (Sensex or Nifty) moves 10 per cent in either way before 1 PM, trading across-the-board will stop for 45 minutes. If the limit is breached between 1 pm and 2:30 pm, the halt duration will be 15 minutes while after 2:30 pm, there will be no halt.
The stock exchanges on a daily basis disseminate the 10 per cent, 15 per cent and 20 per cent circuit breaker limits on the closing value of the indices (Sensex and Nifty) for the next trading day.