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SEBIís new Bands: Lets Rock

Jun 30, 2001

SEBI has introduced price bands for both the BSE Sensex and Nifty Fifty. The index based market wide circuit breaker system shall apply at three stages of the index movement either way at 10%, 15% and 20%. These circuit breakers shall bring about a coordinated trading halt in all equity and equity derivative markets nationwide. Movement of either BSE Sensex or the NSE S&P CNX Nifty whichever is breached earlier shall trigger the market wide circuit breakers. These circuits come into effect from the 2nd of July 2001. SEBI has asked the exchanges to implement index based market wide circuit breaker in compulsory rolling settlement.

Price Band 10 %
Time Range Trading Halt
If index hits 10% band †
Before I p.m. 1 hour
At or after I p.m. - before 2:30 p.m. 30 minutes
At or after 2:30 p.m. No halt
Price Band 15 %
Time Range Trading Halt
†If index hits 15% band
Before I p.m. 2 hours
At or after I p.m. - before 2 p.m. 1 hour
At or after 2 p.m. Complete halt

In case of a 20% movement of the index, trading shall be halted for the remainder of the day.

These percentages (10%, 15% and 20%) shall be translated into absolute points of index variations on a quarterly basis and at the end of each quarter these absolute points of index variations shall be revised and be applicable for the next quarter in place of the percentage change. The absolute points shall be calculated based on closing level of index on the last day of the trading in a quarter and rounded off to the nearest 10 points in case of S&P CNX Nifty.

The introduction of price bands on the indices was done with a view to curb unwarranted volatility, as with the creation of the derivatives market there are chances of heavy speculation on index based instruments. Both the options and the futures that trade currently are index based.

Those in rolling

In addition to the market wide index based circuit filters, there will be a 20% price band either way for stocks that are into compulsory rolling settlement except for scrips on which derivatives products (stock options) are available and those included in the indices on which derivatives products (index futures and options) are applicable (BSE Sensex and NSE Nifty). As delivery becomes compulsory on these scrips, the price band has been relaxed on either side, as it will require a lot more money to speculate on these scrips. These scrips attract more speculation due the relatively greater amount of information available on these scrips and of course, the holding too is large.

List of scrips without any price bands are given in the list below.

S.No Symbol Security
1 ABB Asea Brown Boveri Ltd
2 ACC Associated Cement Co Ltd
3 ASIANPAINT Asian Paints India Ltd
4 BAJAJAUTO Bajaj Auto Ltd
5 BHEL Bhel
6 BRITANNIA Britannia Industries Ltd
7 BSES Bses Ltd
8 CASTROL Castrol India Ltd
9 CIPLA Cipla Ltd
10 COCHINREFN Kochi Refineries Ltd
11 COLGATE Colgate Palmolive (I) Ltd
12 DABUR Dabur India Ltd
13 DIGITALEQP Digital Equipment (I) Ltd
14 DRREDDY Dr. Reddy's Laboratories
15 GLAXO Glaxo India Ltd
16 GRASIM Grasim Industries Ltd
17 GUJAMBCEM Gujarat Ambuja Cement Ltd
18 HCL-INSYS HCL Infosystems Ltd
19 HDFC HDFC Ltd
20 HDFCBANK HDFC Bank Ltd
21 HEROHONDA Hero Honda Motors Limited
22 HINDALC0 Hindalco Industries Ltd
23 HINDLEVER Hindustan Lever Ltd
24 HINDPETRO Hindustan Pertoleum Corp
25 ICICI ICICI Ltd
S.No Symbol Security
26 INDHOTEL Indian Hotels Co Ltd
27 INFOSYSTCH Infosys Technologies
28 IPCL Indian Petrochemicals Cor
29 ITC ITC Ltd
30 L&T Larsen & Toubro Ltd
31 M&M Mahindra & Mahindra Ltd
32 MTNL Mahanagar Telephone Nigam
33 NESTLE Nestle India Ltd
34 NIIT NIIT Ltd
35 NOVARTIND Novartis India Ltd.
36 ORIENTBANK Oriental Bank Of Commerce
37 P&G Proctor & Gamble Ltd
38 RANBAXY Ranbaxy Labs Ltd
39 RECKCOLMAN Reckitt Benckiser (I) Ltd
40 RELIANCE Reliance Industries Ltd
41 RELPETRO Reliance Petroleum Ltd
42 SATYAMCOMP Satyam Computers
43 SBIN State Bank Of India
44 SMITKLBECH Smith.Beech.Cons.Health
45 TATACHEM Tata Chemicals Ltd
46 TATAPOWER Tata Power Co Ltd
47 TATATEA Tata Tea Ltd
48 TELCO Telco Ltd
49 TISCO Tata Iron And Steel Co Ltd
50 ZEETELE Zee Telefilms Ltd

Sterlite optical and VSNL do not figure either in the Sensex or the Nifty but are included in the list of stocks on which there will be individual stock options. Therefore, these two stocks also should not have price bands.

Those not in rolling

For the securities that are not in the compulsory rolling settlement, the existing price band shall continue. The price bands in the ALBM and Limited Physical Market shall be same as applicable as in case of normal market. In case of other securities and debentures, warrants, preference shares etc the existing price band shall continue.

The price bands for auction market:

For securities in compulsory rolling with no price bands in the normal market there shall be no price bands in auction market. For securities in compulsory rolling with 20% price band in the normal market, the auction price band shall be 20%. For all other remaining securities the existing price band of the auction market shall continue.

This move by the SEBI would help the markets in terms of better price discovery and efficiency. However, this comes at a cost, the volatility will be greater but the compulsory rolling settlement will help relieve this to some extent.


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