What are Circuit filters & trading bands?

In order to check the volatility of shares, SEBI has come up with the concept of Circuit Filters. Under this, Sebi has specified the fixed price bands for different securities within which they can move on a given day.

Recently, in a bid to check the rampant price manipulation in small-cap stocks (known as penny stocks), stock exchanges reduced the circuit filter maximum permissible rise in prices in a day to 5 per cent. Earlier, stocks were allowed to rise up to 20 per cent in a session.

The NSE has also reduced the circuit filter in all the stocks, which are traded on a trade-to-trade basis to 5 per cent. As the closing price on BSE and NSE can be significantly different, this means that the circuit limits for a share on BSE and NSE can be different.