Definition
Index Circuit Breaker
An index circuit breaker is the threshold-based trading halt applied when a benchmark index such as the Nifty 50 or Sensex moves by a specified percentage, pausing trading market-wide.
The index circuit breaker is the trigger mechanism behind India's market-wide circuit breaker: a 10%, 15% or 20% move in the reference index sets off a coordinated halt across the cash and derivatives segments of both the NSE and BSE. The reference is whichever of the two indices breaches the level first.
The length of the halt depends on the threshold crossed and the time of day, ranging from a brief pause to closure for the rest of the session at the 20% level. After each halt, trading resumes via a pre-open session to re-establish an orderly price.
Related terms
- Pre-Open SessionThe pre-open session is a short window before regular trading begins, during which orders are collected and a single opening price is established through a call auction to absorb overnight information.
- Price BandA price band is the maximum permissible price movement, expressed as a percentage above and below a reference price, within which a security may trade during a session before being frozen.
- Dynamic Price BandA dynamic price band is a flexible price collar, used mainly in the derivatives and high-band cash segments, that can be relaxed in steps during the day when genuine demand pushes prices to the limit.
- Market-Wide Circuit BreakerA market-wide circuit breaker halts trading across all equity and derivatives segments when a benchmark index moves beyond preset thresholds, giving the market time to absorb information and cool down.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.