Gone in 22 seconds with no clue on who bought and who sold. But the systems of shutting the markets down, if they cross 10 per cent, 15 per cent and 205 limits in one single day were all tested. And the markets did emerge strong but is it what Indian markets need?
The debate is on regarding what will be more effective circuit breakers or circuit filters.
With a circuit breaker the system stops trading activity, if and when prices move beyond a specified level, whereas a circuit-filter is a ceiling fixed on price movement.
For instance, assume a stock is at Rs 100 rupees and if the circuit breaker is 5 per cent then trading will stop if it hits Rs 95 or Rs 105.
And if the circuit filter is 5 per cent then it only means that traders cannot bid/ask quotes below Rs 95 or above Rs 105, which means shutting down of trading.
However, a market-wide circuit filter would have allowed trades to happen but it would have put a ceiling on the price of the stock and allow people to book profits. Only the index level and individual prices of stocks would have been capped at the specified levels.
The question is how should price discovery take place when the markets crash like it did 5 years ago. Circuit breakers prevent panic from spreading but on Monday on the way up it has left a lot of people out of the market. So, if UPA does mean reforms and the Sensex really reflects that then why let trade stop?
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