CIRCUIT FILTERS

Today my ROOMY, Mr. Amit Chauhan told me to write about CIRCUIT FILTERS of the stock market. So today I am posting some information and my experience about these CIRCUIT FILTERS. This is the information what I got from bseindia.com…………..

BSE is one of the few stock exchanges in the world, which has obtained the ISO certification for its surveillance function.

The intention of circuit-breakers is to reduce excessive speculation by stopping order flow. The roots of circuit breakers can be traced to the 1987 crash of the US markets. In India, circuit breaker was introduced by the Securities and Exchange Board of India in 2000.

The principle on which circuit breakers operate is simple. When the buying and selling of shares gets frenzied, a circuit breaker is triggered. This could be at the stock level or market wide level. Once the circuit breaker is triggered, it halts further trading in the stock or indexes either for a number of hours or for a day. This provides cooling period to market participants to assimilate and re-act to market movements.

Circuit Filters (For Stocks)

The circuit filters are especially for illiquid scrips or as a price containment measures. The circuit filters are 10 % or 5 % or 2 % as the case may be, based on the criteria decided by the Surveillance Department. No circuit filters are applicable on scrips on which derivative products are available and scrips which are liquid and included in indices on which derivative products are available (i.e. F & O Stocks). However, BSE imposes dummy circuit filter on these scrips to avoid punching errors, if any. Circuit Filter of 20 % is applicable on other scrips which are not included in the above-mentioned category.

Market Wide Circuit Breakers

The earlier Circuit Filters at individual scrip level used to restrict the movements of indices as well. Now, there are no Circuit Filters on the scrips forming part of popular indices like SENSEX. In order to contain huge price movements of index scrips, SEBI has mandated that Market Wide Circuit Breakers (MWCB) which at 10-15-20% of the movements in either BSE SENSEX or NSE Nifty whichever is breached earlier would be applicable. This would provide a cooling period to the market participants and to assimilate and re-act to the market movements.

The trading halt on all stock exchanges would take place as under…

Index Move (+/-)	Trading Time (9:55 –15:30 IST)	Trade Halt
10%	Before 13:00 IST	1 hour
10%	13:00 -14:30 IST	½ hour
10%	After 14:30 IST	No halt
15%	Before 13:00 IST	2 hour
15%	13:00 -14:00 IST	1 hour
15%	After 14:00 IST	Rest of the day
20%	Any time	Rest of the day

Now about my experience about CRICUIT FILTER stocks…………

According to me these stocks are most risky and most profitable stocks.

These stocks are most profitable because within 18 trading days your amount will be doubled. But most of the time, these stocks get upper circuited as and when market opens. So after this we will not be able buy because of non trading. Means there will not any seller. For some of the these stocks I place order even before market opens, but I failed many times, since they opens with upper circuit only.

Now about risk part, once these stocks lower circuiting then you will not be able to sell these stocks since there not be any buyer. So in same 18 trading your market value may be halved.

I have made 60-70% in 10-12 trading days on some these stocks. But some times on same stocks my market value of these shares reduced to 50% also. So these stocks are for aggressive traders, I mean you have to watch daily market movement & act according to it. So Amit, I think this sufficient information about circuit filters. For any clarification, I will be there with you only in room…………………………

Traders should checklist before trading/investing in a stock:

* There are no circuits on 30 stocks included in the BSE Sensex or the 50 included in the Nifty S&P CNX.

* Exchanges have fixed operating range of 20% for index stocks on which derivatives products are available. This is to prevent members from entering orders at non-genuine prices. If an order is punched above or below 20%, it will show punching error in these index stocks.

* No price bands are applicable on scrips on which derivatives products are available. Currently, the futures and options (F&O) contracts are available on 227 scrips stipulated by the Securities & Exchange Board of India (Sebi).

* The remaining stocks will fall under 2%, 5%, 10% and 20% circuit-filter categories.

* On the day of listing of an IPO, the stock’s price is allowed to fluctuate without restriction. From the second trading session onwards, the stock moves into a 20% operating range that is applicable to all listed stocks.