Share filters, or circuit breakers, are adjusted daily based on the previous day's closing price, setting upper and lower price limits for stocks, and can be found on the stock exchange's website.
The exchanges (NSE and BSE) regularly revise the circuit filters based on factors such as liquidity, volatility and market participation. The change in circuit filters ensures smooth trading and prevents excessive speculation.
Reasons for Circuit Filter Changes:
- Based on Volatility & Liquidity
- If a stock shows high volatility or abnormal price movements, the exchange may reduce the circuit limit (e.g., from 20% to 10%).
- If a stock is stable with low liquidity, the circuit filter may be expanded to allow more price movement (e.g., from 5% to 10%).
- Periodic Review by Exchanges
- NSE & BSE review circuit filters regularly (typically monthly or quarterly) and update them based on stock behaviour.
- Stock Inclusion or Exclusion from Derivatives (F&O) Segment
- Stocks in the Futures & Options (F&O) segment do not have fixed circuit filters but are subject to a dynamic price band based on market-wide position limits.
- If a stock is moved out of F&O, a circuit limit (e.g., 5%, 10%, 20%) is applied.
- Corporate Actions (Bonus, Split, Rights Issue, etc.)
- When a stock undergoes a bonus issue, stock split, or rights issue, the price adjusts, and exchanges may update their circuit filters accordingly.
- Surge in Trading Volumes
- If a stock experiences a sudden increase in trading volume, the exchange may tighten circuit breakers to prevent manipulation.
- Reclassification of Stocks
- Exchanges categorise stocks under different risk levels. If a stock moves to a higher risk category, a stricter circuit filter (e.g., reducing from 20% to 10%) may be applied.
