How does a circuit breaker work in the stock market? What is the practice in Nepal?

The stock market employs a circuit breaker mechanism to prevent investments from being impacted by excessive fluctuations. Nepal also has implemented this system. The arrangement of circuit breakers in Nepal differs from that in other countries and can be both positive and negative.

The regulatory body for share transactions in Nepal, Nepal Stock Exchange Limited (NEPSE), has a system in place to activate circuit breakers when the market rises or falls excessively.

NEPSE enforces a circuit breaker within the first hour of market opening if the index increases or decreases by 4%, which lasts for 20 minutes in the Nepali market. Similarly, if the NEPSE index falls or rises by 5% within the second hour after the market opens, a circuit breaker is triggered again, lasting for 40 minutes. Furthermore, if the market drops or rises by an additional 1% after the second circuit, reaching a total of 6%, a circuit breaker is activated. After the third circuit, the market closes for the day.