What is a circuit breaker in Nepse?
A circuit breaker is a rule adopted by Nepal Stock Exchange to control unreasonable price fluctuation. If NEPSE index fluctuates 4 % within the first hour of regular trading i.e before 12 pm, trading will be suspended for 20 minutes. If Nepse fluctuates by 5 % within the second hour i.e 1 pm, trading is suspended for another 40 minutes as a second circuit. After that, if the market index fluctuates by 6 %, all transactions for the rest of the day will be suspended.
This halt gives market investors to analyze events, news, announcements and take a necessary rational decision.
NEPSE has implemented an index-based circuit breaker from 21 Sep 2007. A circuit breaker is a market stabilizing tool used to check sudden rise/fall in the index. The circuit breaker rule was first introduced in the United States in 1987 when Dow Jones Industrial Average (DJIA) plummets 22% in a single day “The Black Monday.” Usually, index-based circuit breakers apply for three levels.
Circuit Breaker Table
|4% ⬆️ or ⬇️||Before 12 PM||20 minutes|
|5% ⬆️ or ⬇️||Before 1 PM||40 minutes|
|6% ⬆️ or ⬇️||Before 3 PM||Entire day|
Circuit for Individual Stock
There is another concept in Nepse trading, if the price of the individual company increase or decreases by 10% in a single day, it is called circuit-level trading. For example, the price of the ABC scrip can increase or decrease only by 10%. If it increases by 10% it is called a positive circuit and if the price decrease by 10%, it is called a negative circuit.
Note – The trading of stock will not be halted even after a positive or negative circuit like in the NEPSE index.
History of Circuit Break in Nepse
- CASBA Charge of Nepali Banks
- Everything You Need to Know About Collateral
- IPO Allotment Process in Nepal
- Upcoming FPO in Nepal