[Podcast] Why do financial markets have circuit limits?

CM Team

[Podcast] Why do financial markets have circuit limits?

Ever wondered why stocks have upper and lower circuits?

It all started on Black Monday in 1987, when a 25% market correction prompted the introduction of market-wide circuit breakers in the US. These limits aimed to ensure market maker solvency and prevent panic-induced trading.

Fast forward to 2001, and India also introduced circuits to handle intraday market volatility. From the Nifty's inception to the imposition of index-level circuit filters, the Indian market landscape has witnessed a steady evolution in its approach to market regulation.

In this episode, we delve deeper into the concept of circuits with real-life stories and understand how they help the market.

We also discuss whether should circuits continue to exist in their current form. or is it time to explore alternatives that foster greater transparency and resilience?

Show Notes & References

00:00 Introduction and Disclaimer
01:24 Background on limits or circuit breakers.
06:38 When did India implement the circuit breaker?
09:20 What are the current rules for circuits in India?
15:58 Why are circuits interesting in the first place?
19:07 What would happen if circuits weren’t there?
24:38 Some interesting stories on circuits in the stock market
36:34 What is a better way to manage circuits?
40:47 Will circuits continue to exit?


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