To check volatility on the stock market, SEBI has issued a circular revising the market halting circuit breaker limits for stock exchanges, with effect from 1 October 2013. These limits set out the maximum movement permitted in the indices during a trading session. At present, the circuit breakers are calculated on the basis of the levels attained by the index at the end of each quarter.
The recent circular states that the stock exchange on a daily basis shall translate the 10%, 15% and 20% circuit breaker limits of market-wide index variation based on the previous day’s closing level of the index. With the new computation mechanism in place, SEBI intends to narrow the limits and link the circuit breakers with more current daily market indices. The move seeks to limit the downward spiral of prices, either through a flash crash or because of a black swan event.