NISM-Series-VII: Securities Operations and Risk Management · Risk Management

Position Limits, Exposure Limits and Circuit Filters Explained

Updated 11 October 2026 · Fact-checked

These are three controls that cap risk in the market. Position limits cap how large an open derivatives position a client or member can hold. Exposure limits cap trading by the collateral deposited. Circuit filters stop prices moving too far, either in one stock (price bands) or in the whole market (index-based circuit breakers).

Understand Position Limits, Exposure Limits and Circuit Filters

Markets can go wrong in three ways. Someone builds a position so large that it can distort prices or cannot be settled. A broker trades far more than its capital can support. Or prices move so fast that nobody can think. Each limit in this topic answers one of these problems.

Position limits cap the open position in derivatives. They apply at several levels: the individual client, the trading member, and the whole market for a stock. The market wide position limit (MWPL) is the cap on the total open interest in a single stock across all participants. Limits are usually written as 'the higher of a fixed amount or a percentage of open interest', so learn that pattern. Also note whether a limit is on a gross or a net position.

When total open interest in a stock reaches 95% of its MWPL, the stock enters the ban period. In the ban period, only trades that reduce existing positions are allowed. Fresh positions attract penalty. The stock comes out of the ban once open interest falls below a lower threshold (80% of MWPL).

Exposure limits link trading to money. A member can take positions only up to a multiple of the collateral lodged with the clearing corporation. The system monitors this in real time. When the limit is used up, new orders that increase exposure are blocked until more collateral is added or positions are closed. Brokers also set exposure limits for their own clients based on the margin the client has given.

Circuit filters control price movement. A price band is a daily range, as a percentage of the previous close, within which an individual stock can trade. The market-wide circuit breaker is different. It watches the benchmark index (Sensex or Nifty, whichever is breached first) and halts trading across equity and equity derivatives at 10%, 15% and 20% moves. The length of the halt depends on the time of day when the trigger is hit.

Key formulas to remember

Index circuit breaker triggers: 10% | 15% | 20% movement in Sensex or Nifty, whichever is breached earlier, measured against the previous day's close; Applies to both equity and equity derivatives. A move in either direction, up or down, triggers it.
10% trigger halt: Before 1:00 pm: 45 minutes | 1:00 pm to before 2:30 pm: 15 minutes | 2:30 pm or later: no halt; Later in the day, a given move causes a shorter halt.
15% trigger halt: Before 1:00 pm: 1 hour 45 minutes | 1:00 pm to before 2:00 pm: 45 minutes | 2:00 pm or later: trading halted for the rest of the day; Do not mix the cut-off times of the 10% and 15% rules.
20% trigger halt: Trading halted for the rest of the day, at any time; Time of day does not matter at 20%.
Trigger level of the index: Trigger level = Previous close × (1 ± trigger %); Use 1 + % for a rise and 1 − % for a fall.
MWPL ban rule: Open interest in stock ≥ 95% of MWPL → ban period; only position-reducing trades allowed; The stock exits the ban when open interest falls below 80% of MWPL.
Typical form of a position limit: Limit = higher of (fixed rupee amount or number of contracts) and (a % of market open interest); Learn the exact figures for clients and members from the current NISM workbook, as they are revised by SEBI and exchanges.
Exposure limit idea: Exposure allowed ≤ multiple of collateral deposited with the clearing corporation; More collateral means more exposure room. A breach blocks new exposure-increasing orders.

How to solve Position Limits, Exposure Limits and Circuit Filters questions

Most questions ask you to name the right control, apply a trigger, or state what happens at a limit. Use the same sequence each time.

1Identify the control: position limit, exposure limit, price band or market-wide circuit breaker.
2Identify who it applies to: client, trading member, a single stock, or the whole market.
3Check what the measure is: open interest, collateral, or price or index movement against the previous close.
4For circuit breaker questions, compute the trigger level from the previous close and note which index moved first.
5Note the time of day at which the trigger was hit, and read off the halt duration from the right percentage rule.
6For MWPL questions, compare open interest with 95% of MWPL and decide whether the ban applies.
7State the consequence: halt, ban with only reducing trades, or blocked orders.
8Check the options for traps such as swapped times, wrong percentages or gross versus net.

Quickest way: Three-line recall for limits and breakers

When to use it: Use it when a question gives you a time and a percentage move and asks for the halt, or lists several controls and asks which one fits.

Think 10-15-20. At 20%, the day ends at any time.
For 10% and 15%, the halt shrinks as the day goes on. Cut-offs: 1 pm and 2:30 pm for 10%; 1 pm and 2 pm for 15%.
Position limit means open interest. Exposure limit means collateral. Price band means one stock. Circuit breaker means the index.
If a stock's open interest is at or above 95% of MWPL, think ban with reducing trades only.

Common mistakes in Position Limits, Exposure Limits and Circuit Filters

Treating a price band and a market-wide circuit breaker as the same thing.
Both are called circuit filters or circuits in everyday talk.
Fix: A price band is for one stock's daily range. The market-wide breaker is triggered by Sensex or Nifty and halts the whole market.
Mixing up the cut-off times of the 10% and 15% rules.
The two tables look alike and have similar numbers.
Fix: For 10% the cut-offs are 1 pm and 2:30 pm. For 15% they are 1 pm and 2 pm, and a 15% hit at or after 2 pm ends trading for the day.
Measuring the index fall from the day's open or high instead of the previous close.
Students think of a fall from where the market started that day.
Fix: The base is always the previous day's closing index level.
Thinking a stock in the ban period cannot be traded at all.
The word 'ban' sounds absolute.
Fix: Only trades that reduce existing positions are allowed. Fresh positions are not.
Confusing position limits with exposure limits.
Both limit how much a participant can do.
Fix: Position limits cap open positions in derivatives, relative to open interest. Exposure limits cap trading relative to collateral deposited.
Quoting fixed rupee limits from memory of older notes.
Limits are revised and old notes circulate widely.
Fix: Learn the pattern 'higher of a fixed amount or a percentage of open interest', and take the exact numbers only from the current workbook.

Worked examples

Example 1

The Nifty closed at 24,000 yesterday. Today at 11:30 am it falls to 21,500 and the exchange applies the market-wide circuit breaker. What is the trigger and the halt? (a) 10% trigger, 15-minute halt (b) 10% trigger, 45-minute halt (c) 15% trigger, 45-minute halt (d) 20% trigger, halt for the rest of the day

Show the solution

Fall in points = 24,000 − 21,500 = 2,500.
Fall in percentage = 2,500 ÷ 24,000 = 10.4%, which crosses 10% but not 15%.
The 15% level would be 24,000 × 0.85 = 20,400, and 21,500 is above it, so only the 10% trigger applies.
The time is 11:30 am, which is before 1:00 pm.
For a 10% trigger before 1 pm, the halt is 45 minutes.

Answer: (b) 10% trigger, 45-minute halt.

Example 2

The MWPL of a stock is 10 crore shares. Open interest across all participants is 9.6 crore shares. What is the position, and what trades are allowed? (a) No restriction because open interest is below MWPL (b) Ban period, only position-reducing trades allowed (c) Ban period, no trade of any kind allowed (d) Trading halted for the whole market

Show the solution

95% of MWPL = 10 crore × 0.95 = 9.5 crore shares.
Open interest of 9.6 crore is above 9.5 crore, so it is 96% of MWPL.
Reaching 95% of MWPL puts the stock in the ban period.
In the ban period, only trades that reduce existing positions are allowed. Fresh positions are not.
A stock-level ban does not halt the whole market, so (d) is wrong.

Answer: (b) Ban period, only position-reducing trades allowed.

Exam tips

Memorise the circuit breaker grid as a small table in your head: percentage, time window, halt length. Questions often change only the time.
Read whether the question is about a single stock or the whole market before you choose between price band and circuit breaker.
Negative marking is 25% of the question's marks, so do not guess between two close halt durations. Recompute from the rules.
For position limit figures, check the current workbook. Questions test the level (client, member, market-wide) as often as the number.
Watch the words gross and net, and open interest and collateral. Options often swap them.

Practice questions from Risk Management

Position Limits, Exposure Limits and Circuit Filters: frequently asked questions

What is the difference between a price band and a circuit filter?

In everyday use, a circuit filter is the price band on a stock: the daily range around the previous close beyond which orders are not accepted. The market-wide circuit breaker is separate. It is based on the Sensex or Nifty and stops trading across the market.

How do market-wide circuit breakers work?

They trigger when Sensex or Nifty, whichever is breached first, moves 10%, 15% or 20% from the previous close. The halt depends on the percentage and the time of day. A 20% move halts trading for the rest of the day at any time.

What are position limits in F&O?

They cap open derivatives positions at the level of the client, the trading member and the whole market for a stock. Limits are usually set as the higher of a fixed amount or a percentage of open interest. Use the current NISM workbook for exact figures.

What are exposure limits for stock brokers?

A broker can take exposure only up to a multiple of the collateral it has lodged with the clearing corporation. The exposure is monitored in real time. When the limit is used up, new orders that add exposure are blocked until collateral is increased or positions are closed.