Circuit Breaker Rules Under Review

Discussions have begun to revise the circuit breaker rules in Nepal’s securities market following the trading halt at the Nepal Stock Exchange (NEPSE) earlier this week.

A circuit breaker is a mechanism that temporarily halts trading to prevent panic buying or selling when the market rises or falls sharply.

The issue drew attention after trading at NEPSE was halted mid-day for the rest of the day on March 9, when the market reopened after a week-long break due to the House of Representatives elections and other public holidays.

The benchmark NEPSE index surged by 4 percent within one minute of trading, triggering the first circuit breaker and a 20-minute suspension. After trading resumed, the index climbed another 1 percent within a minute, activating the second circuit breaker and a 40-minute halt.

When trading resumed again, the index rose by a further 1 percent within a minute, taking the total gain to 6 percent. This triggered the third circuit breaker and suspended trading for the remainder of the day.

By the time trading closed, the NEPSE index had gained 162.93 points to reach 2,875.43.

“A discussion is underway to improve the system because, unlike Nepal, most countries do not close the market entirely due to circuit breakers,” a senior official at the Securities Board of Nepal (SEBON), the market regulator, told New Business Age.

One proposal under discussion is to base circuit breakers on the float index instead of the NEPSE index.

The NEPSE index includes all listed securities, while the float index excludes shares that are not publicly traded. Promoter shares and government-held shares, for instance, are included in the NEPSE index but not in the float index.

Officials are also considering reducing the number of circuit breakers allowed in a day from three to two. Another proposal suggests shortening the suspension period.

Under the current rules, if the index rises or falls by 4 percent within the first hour of trading, the first circuit breaker halts trading for 20 minutes. If the market moves by an additional 1 percent after trading resumes, reaching a 5 percent change, the second circuit breaker halts trading for 40 minutes. If the index then moves by another 1 percent to reach a 6 percent change, trading is suspended for the rest of the day.

In September 2025, Finance Minister Rameshore Khanal formed a four-member task force led by SEBON Executive Director Rupesh KC to identify issues in the capital market and recommend reforms. The panel also recommended reviewing the circuit breaker rules.

SEBON has since been preparing to implement those recommendations.

A senior official at the regulator said discussions were held on Tuesday with the management of NEPSE to review the existing system.

Murahari Parajuli, information officer at NEPSE, said the exchange is ready to revise the system if directed by the regulator.

“The mechanism is meant to temporarily halt trading during extreme volatility, but completely shutting down the market is impractical,” said Parajuli, adding that international practices would also be considered while revising the rule.