Circuit Filters or Price Bands in Stock Exchanges
Circuit Filters (Circuit filter in BSE) or Price Bands (Price Bands in NSE) are used as a surveillance measure. It is a proactive measure followed by Stock Exchanges in Stocks which are not part of Futures and Options (Derivatives) Segment.
Circuit filters or Price Bands on stocks are different from Circuit Breaker on Index. Read more about circuit breaker on nifty and sensex. There are 4 circuit filters that are applicable on Indian Stock Exchanges.
1) Daily Price Band / Circuit Filter at 2% (+2% or -2%).
2) Daily Price Band / Circuit Filter at 5% ( +5% or -5%).
3) Daily Price Band / Circuit Filter at 10% ( +10% or -10%) and
4) Daily Price Band / Circuit Filter at 20% (+20% or -20%).
Circuit filter of 20% is applicable on all stocks, debentures and preference stock which do not fall under 2%, 5% and 10% price bands and which are not part of derivatives.
Also no circuit filter is applied for stocks which are included in futures and options segment(Derivative Segment). Further No circuit filter is applied on stocks which are not in derivative segment but is part of an index which trades in derivative segment. Many traders and investors get confused about circuit filters related to stocks which are not in derivative segment but included in index. Even if some stock is not in derivative but is included in an index which is in derivatives segment ( Eg: Nifty Midcap 50), such stocks will not have any circuit filters.
Although Derivatives stocks do not have any circuit filters, exchanges have fixed 10% (+10% or -10%) as operating range during trading hours. This is required to prevent trading members to enter non genuine orders at extreme price ranges. This dynamic operating range also helps members to avoid wrong punching of orders by mistake. Once the price of the stock which is in derivative segment moves near to this operating range, price band will be extended by exchanges.
Limited Physical market securities will have same price bands or circuit filters that are applicable in Normal markets. For auction markets, the price band is fixed at 20%.
Circuit filters on BSE are updated daily and any changes are notified through circular published on the exchange.
Similarly NSE Price Bands are updated daily and changes in price bands can be downloaded from here under the file name price band changes from next trade date.
One can also watch the present Daily Price ranges (Upper price band and Lower Price Band) from the exchange websites. Here are two samples each of BSE and NSE showing price bands for reliance industries.