NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management
Which of the following best describes the purpose of a circuit filter (price band) on a stock?
A circuit filter or price band limits how far a stock's price can move up or down in a single day by a set percentage. This curbs excessive volatility and protects investors. It does not guarantee settlement, fix brokerage or determine margins.
- ATo limit the maximum percentage by which the price can move in a day, curbing excessive volatilityCorrect
- BTo guarantee the settlement of trades in that stock
- CTo fix the brokerage that can be charged on that stock
- DTo set the margin collected from the clearing member
Explanation
Circuit filters restrict the price movement of a security within a day to a set percentage band, reducing excessive volatility. They have no role in settlement guarantee, brokerage, or margin setting.
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