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

Step 1: Understanding the Question:
The question wants the official name of the mechanism that stops trading on a stock exchange when an index rises or falls sharply within a short time.

Step 2: Key Fact or Approach:
Stock exchange regulators build in automatic trading halts to prevent panic driven crashes or spikes. In India this specific price band mechanism applied to broad market indices has one accepted name, and eliminating the terms that describe something else narrows down the answer.

Step 3: Detailed Explanation:
SEBI, together with the BSE and NSE, sets index movement thresholds, commonly 10 percent, 15 percent and 20 percent moves in the Sensex or Nifty, that trigger a market wide trading halt for a fixed number of minutes or for the rest of the day depending on the time of the move.
This regulatory price band is called a circuit filter.
Limit orders belong to individual traders placing buy or sell instructions at a chosen price, which is a completely different concept from a market wide regulatory halt.
Bounds and current breakers are not the terms used in exchange regulation, they are close sounding but incorrect labels included to test careful reading.

Step 4: Final Answer:
The regulator prescribed price limit on stock indices is called a circuit filter, so option (a) is correct.