Recently after the Hindenburg revelations, many of the Adani Group companies’ stocks have hit the lower circuits in subsequent trading sessions.
About Circuit breaker in Trading:
- The Securities and Exchange Board of India (SEBI) implemented index-based market-wide circuit breakers in June 2001.
- Circuit breakers are triggered to prevent markets from crashing due to a panic-induced sale of stocks.
- This can occur for a variety of reasons, leading to stockholders in the market believing that their stocks are overvalued. As a result, they engage in a sell-off.
- Circuit breakers temporarily halt trading, thereby halting the sell-off.
- Circuit-breakers effectively limit how much a stock's value can fall in a single day/trading session, resulting in a more stable market overall.
How do these work?
- This index-based market-wide circuit breaker system applies at three stages of the index movement, at 10, 15 and 20 per cent.
When triggered, these circuit breakers bring about a coordinated trading halt in all equity and equity derivative markets nationwide.
Q1) What is the equity derivative?
An equity derivative is a financial instrument whose value is based on the equity movements of the underlying asset.