What will happen if market does hit circuit tomorrow?

The markets are preparing for a volatile session on Friday and why not? The memories of the triple circuits that were breached five years ago on verdict day 2009 are still fresh on everyone's minds. But stock exchanges and the regulator have been busy shoring up their defences over the last five years. On the 18th of May 2009, history was made not because the UPA was elected into power for a second term, but because that's the day the stock markets hit their upper circuits not once, not twice, but three times. The triggering of the circuit filters on the BSE and NSE forced trading to come to a grinding halt, and the exchanges downed shutters for the rest of the day. But exchanges and the markets regulator are confident history will not repeat itself on Friday. As far as the circuit situation is concerned. And they have good reason to be. Five years ago, the index level for circuit filters was decided at the beginning of the quarter, but today, circuit filters are decided on a daily basis, based on the previous day's closing level for the index. Five years ago, the markets did not have a pre-open auction period of 15 minutes, but today, every time the markets restart, traders go through a 15-minute pre-open auction that requires them to trade based on the delivery of shares. Experts say this pre-open auction will act as a balancer, in case the markets halt after a 10 percent move, and are hence forced to restart.

Here's how that works: If an index moves 10 percent before 1 pm, trading will halt for 45 minutes after which there will be a 15-minute pre-open session followed by regular trading.  If it moves 10 percent after 1 pm, but before 2:30 pm, the markets will shut for 15 minutes and open after another 15-minute pre-open auction. If the 10 percent move happens after 2:30 pm, trading will not halt. Now, if the market moves 15 percent before 1 pm, then trading resumes after a 1 hour 45 minute break, followed by a 15-minute pre-open. If the 15 percent move comes between 1 and 2:30 pm, trading is suspended for 45 minutes, followed by a 15-minute pre-open auction. But should the 15 percent move take place after 2:30pm, the markets will down shutters for the rest of the day. In the event of a 20 percent circuit being triggered, trading will be halted for the remainder of the day. Stock exchanges have already incorporated dynamic circuits for the stocks that form part of the index and derivative segment. If any stock crosses the 9.9 percent mark in either direction, it would need at least 10 trades from multiple unique client codes to push the stock beyond 10 percent. This would be applicable at intervals of every 5 percent, in either direction meaning when the stock crosses a 14.9 percent threshold and then goes on to cross the 19.9 percent threshold. With these safeguards in place, exchanges and the regulator are confident the investing public will have a more stable market environment to participate in on counting day, without fear that the big boys will spoil the party.

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