Circuit Filter/Circuit Breaker

Circuit Filter/Circuit Breaker is the band that set upper and lower limit within which stock / Sensex can fluctuate on any particular day. These filters restrict extreme price movement and curb price manipulation to some extent by stockoperators. Circuit Filter also protects investors from extreme price fluctuation.
Circuit filter in respect of shares are price bands imposed by the Securities Exchange Board of India (SEBI) to restrict the movement of stock prices(up or down), of listed securities.
Circuit Filter in respect of Sensex is the maximum permissible movement allowed to Sensex or Nifty in a trading session on a daily basis.
For Example:
When the stock price crosses a stipulated price band as decided by stock exchanges, trading in that particular stock is suspended. For example, if you have a share price of Rs 100, and there is a circuit breaker of 10%, it will stop trading if the share price goes above Rs 110. Similarly if the stock price drops below Rs 90, the lower end circuit filter is applied and trading is suspended.
Circuit breakers are applied only on equity and equity derivative markets. Whenever the major stock indices like BSE Sensex and Nifty cross the threshold level, SEBI rules require that the trading atthe stock exchange be stopped for a certain period of time beginning from half an hour to even an entire day. The time frame for which trading is stopped depends upon the time and amount of movement in the indices. The idea is to allow the market to cool down and resume trading at normal levels. The thresholds are implemented stage wise

Movement in Indices	Time	Close period
10 per cent	Before 1.00 pm	1 hour
	1.00 pm to 2.30 pm	½ hour
	After 2.30 pm	Does not close
15  per cent	Before 1.00 pm	2 hour
	1.00 pm to 2.30 pm	1  hour
	After 2.30 pm	Close for the rest of the day
20 per cent	Any time	Close for the rest of the day

Upper circuit and Lower circuit
An upward movement over the threshold will cause a stock to enter an upper circuit. Similarly a downward movement in stock price beyond the threshold will cause a stock to enter a lower circuit. The objective of circuit breakers is to control the stock markets at times when they move beyond reasonable limits. When a stock enters an upper circuit, it puts an investor who has already invested in the stock at an advantage. On the contrary a stock movement into a lower circuit places the investor at a disadvantage because it is now difficult to sell off these shares as they have lost a lot of money.