Question

Which of the following term is used for regulator prescribed price limit on stock indices in stock markets?

• A. Circuit Filter
• B. Bounds
• C. Limit Orders
• D. Current Breakers

Hint:

Think of the index level trading halt mechanism set by SEBI and the exchanges.

Answer 1

The Correct Option is A

This question is about the safety mechanism regulators use to control panic buying and selling on a stock exchange. Let's check each option.

1. Circuit Filter: This is the term used in India for the price band the market regulator sets on stock indices such as the Sensex and Nifty. When an index moves up or down by a fixed percentage such as 10 percent, 15 percent or 20 percent within a set time, trading is halted for a defined period across the whole market. This mechanism, prescribed jointly by SEBI and the stock exchanges, is called a circuit filter, sometimes also written as an index based circuit breaker.
2. Bounds: This is a generic English word for an upper or lower limit, but it is not the specific regulatory term used for exchange trading halts in India, so it does not fit.
3. Limit Orders: A limit order is an instruction an individual trader gives to buy or sell a share only at a chosen price or better. It is a trading tool used by a single investor, not a market wide rule set by the regulator, so it does not answer the question.
4. Current Breakers: This phrase is not a recognised term in stock market regulation. It resembles the correct idea of a circuit breaker but is not the actual name used, so it is a distractor built to look similar to the right answer.

Since the question is asking for the regulator prescribed price limit that halts trading on an index wide basis, the matching term is circuit filter.

Let's summarize:

• A circuit filter is the index level price band set by the regulator and exchanges to pause trading during sharp swings.
• A limit order, by contrast, is a personal trading instruction and not a market wide safeguard.

So the correct answer is option (a), Circuit Filter.