What is a circuit?

To protect investors from severe losses and stop market crashes, the Securities and Exchange Board of India (SEBI) developed the market-wide, index-based circuit breaker protocol in June 2001.

According to this approach, circuit filters are activated at three different levels of the index movement. To put it another way, circuit filters are activated when the benchmark index crosses by 10%, 15%, or 20% above or below the established limits.

Stock price bands are the usual name for the circuit limit of an individual stock. Lower circuits are the floor prices for stocks or indexes, whereas upper circuits are the ceiling prices.

The purpose of the stock market circuit breakers is to curb large stock accumulation, limit panic selling, and avoid extremely volatile markets. Depending on the market and the stock, different circuit limits apply.

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