The Hindu Business Line : Sept 30 benchmark ensures no trading halt

Kolkata, Oct. 24 When the benchmark index falls 11 per cent in a session, it is obvious that there would be many stocks that would hit the lower circuit breaker.

Market-wide, lower circuit at 10 per cent was not triggered on Friday for the NSE Nifty and BSE Sensex..

According to SEBI directive exchanges, have to implement index based market wide circuit breaker in compulsory rolling settlement. The index based market wide circuit breaker system is applicable at three stages of the index movement either way at 10 per cent, 15 per cent and 20 per cent. The percentages are calculated on the closing index value of the quarter. These percentages are translated into absolute points of index variations (rounded off to the nearest 10 points in case of Nifty). At the end of each quarter, these absolute points of index variations are revised and made applicable for the next quarter. On September 30, the last trading day of the quarter, Nifty closed at 3921.20 points. The absolute points of Nifty variation (over the previous day’s closing Nifty) which would trigger market wide circuit breaker for any day in the quarter between October 1, 2008 to December 31, 2008 would be 390 points (10%), 590 points (15%) and 780 points (20%).

Some 639 stocks, however, did hit lower circuit. Their trading was frozen and fall was halted for the day though there were more sellers than buyers.

In March, the 10 per cent circuit breaker was made applicable for 1,118 stocks, while 5 per cent circuit breaker was imposed for 468 and 2 per cent for 22 companies by BSE. But, the scrips having derivative products and the stocks, which are liquid and listed in the indices on which derivative products are available, escaped the circuit boundary.

In a falling market, circuit filters temporarily stalls price discovery. It helps to overcome sentimental dips and stems spread of a contagion. It also stops exit route for the time being.

According to Mr V.K. Sharma of Anagram Securities, circuit filters have become irrelevant. On the contrary, absence of such filters shows the depth of the market as trading continues.

Circuit breakers may appear unfair, but they actually reduce sentiment-driven price movements, said Mr Amitabh Chakraborty of Religare.

“Today’s unusual fall was triggered by large-scale selling by some FIIs and arbitrageurs, who sold in the cash market and turned pure short sellers. Individual stocks’ fundamentals have little to do with this kind of selling led price movement. So the risk control measures such as circuit filters have reduced pain for some. If sentiments turn on the next session, price movement would be in relation the fundamentals.”

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