April 24, 2020 at 8:47 PM #268190Nitin BhatiaKeymaster
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Circuit filters were introduced to ensure that any movement in a stock should be based on logic, rational, and more importantly, Efficient Market Hypothesis or Theory rather based on anxiety/panic or manipulation.
Circuit filters or Circuit breakers were introduced to protect the interests of the retail investors as they are the last one to know about any news or information.
Circuit filters are not applicable to derivatives stocks because of the following 3 main reasons
1. The derivatives of stock were introduced for hedging purposes. Therefore, the circuit filter is not required as you can hedge your position.
2. Volatility is the best friend of traders. Therefore, traders who would like to take advantage of the volatility does not want circuit filters.
3. As the stocks in F&O segments are liquid and active therefore investors and traders expect that there is a fair price discovery mechanism for stocks in the derivatives segment.
Also, that circuit breaker is applicable for index and BSE also applies a 10% dynamic circuit filter for F&O stocks to avoid punching error if any.
In the past, SEBI has proposed to implement a circuit filter for derivatives segment stocks but no final decision was taken.
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