India Plans Circuit Filters for Derivative Stocks to Curb Swings
Signage for the CNX Nifty Index is displayed in the atrium of the National Stock Exchange of India Ltd. (NSE) building in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

India Plans Circuit Filters for Derivative Stocks to Curb Swings

(Bloomberg) -- The Securities and Exchange Board of India Monday proposed extending circuit filters to stocks that are part of the derivatives market, as it seeks to curb extreme swings that have shocked investors in recent weeks.

The proposal follows big down days seen in stocks of companies, including Reliance Communications Ltd., Dewan Housing Finance Corp. and Zee Entertainment Enterprises Ltd., where losses were amplified by the absence of circuit breakers in futures and options.

“Imposing price bands/circuits filters on scrips on which derivatives products are available may arrest abnormal movement of the price of the scrip beyond a certain limit,” Sebi said in the discussion paper released on its website for public comments. “It will also provide company management an opportunity to address market sentiment to restore price normalcy.”

According to Sebi, 40 stocks in the derivatives segment witnessed intraday movements of more than 20 percent during the past six months. The regulator has sought comments on its proposal by Feb. 20.

Indian exchanges enforce circuit breakers in the event of a sharp fall or rise in the markets. The filter limits for stocks range from 2 percent to 20 percent either way, though no price bands are imposed on shares trading in the futures and options segment.

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