Mumbai: The Securities and Exchange Board of India or Sebi on Monday moved to strengthen the market-wide circuit breaker mechanism.

In a circular, Sebi directed National Stock Exchange (NSE) and BSE to compute their market-wide index (Nifty and Sensex respectively) after every trade in the index constituent stocks and to check for breach of market-wide circuit breaker limits after every such computation of the market-wide index.

Stock exchanges are required to halt trading on a 10%, 15% and 20% movement, in either direction, on the BSE’s Sensex or NSE’s Nifty.

The market regulator said in the event of a breach of market-wide circuit breaker limit, stock exchange will now have to stop matching orders in order to bring about a trading halt. All unmatched orders present in the system will thereupon be purged by the stock exchange, Sebi said.

On 5 October 2013, a flash crash on the NSE’s Nifty had highlighted some loopholes in the system, which Sebi’s is now trying to fix.

NSE, as part of its response to a show-cause notice issued by Sebi in April 2013, had said that while the first 10% circuit filter had been triggered at the time of the crash and that the system stopped accepting new orders, but by the time the market shut down, the index had breached the 15% circuit breaker level “due to the execution of orders that were already in the system."

Additionally, the regulator asked the two exchanges to ensure that all messages related to market-wide index circuit breakers are given higher priority over other messages.

“BSE and NSE shall implement suitable mechanism to ensure that all messages related to market-wide index circuit breakers are given higher priority over other messages. Further, the systems (including the network) for computation of market-wide index, checking for breach of circuit breaker limits and initiating message to stop matching of executable order and acceptance of fresh orders, shall not be used for any other purposes," said Sebi.

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