Last Tuesday's 361 point crash saw a number of scrips hitting the lower endof the circuit with volumes on both NSE and BSE shrinking to less than Rs3,000 crore. The following Friday's 352-point rebound in the Sensex saw manyplayers stuck at the ceiling of the upper circuit and once again we werewitness to volumes on the two exchanges touching just about Rs 3,227 crore.

Monday was once again a day when the eight per cent circuits in key counters(especially convergence stocks) squeezing buyers and sellers out of themarket. A quick look at the volumes in some of the fancied counters suggeststhe impact circuit filters can have on liquidity and price discovery.

While nobody wants the circuit filters to be done away with, there are anumber of players who feel it is time to relax the same. Though Sebi wantedthe circuits to be relaxed from 8 per cent to 4 per cent after a coolingperiod, it has not yet implemented it. This notwithstanding the fact thatBSE is ready with the software, which was cited as one of the reasons fornon-implementation of the move.

The extreme swings in the market has had stock exchanges dithering onintroducing any relaxations in the current circuit filter system. Theprevailing mood is to continue with the system at present until the marketreturns to normal. National Stock Exchange managing director RH Patil saidthat it would not be feasible to introduce any changes "during conditions ofextreme volatilities." He said that the Indian stock exchanges were still atthe stage of "feeling its way" with circuit filters on a scrip-wise basis,"we are just experimenting," he explained.

Agreeing that the system needed to be fine tuned, Patil noted that anychanges should be introduced only after careful consideration and wideconsultations with market participants.

BSE President Anand Rathi said that the exchange is of the view that circuitfilters need to be relaxed and ``we are ready with the software. Thedecision has to be taken by Sebi.''

Fund managers hate the circuit filter system. Their investments get blockedas soon as any scrip hits the circuit, effectively blocking their entry orexit. The fund manager of a leading mutual fund said that there was simplyno rationale in the system. Imposition of circuits restricted the freemovement of the market. Without the circuits, he said, the market would havebounced back the same day that it went into a decline - "what is taking fourdays now could have been achieved in a single day," he said, pointing out toNasdaq as an example.

Abhay Aima, head of equities and private banking is against circuit filters``primarily because I think that a circuit filter is an instrument to put anartificial control over an investor's psychology about fear and greed. Whenthe stock is at the upper circuit, driven by greed everybody places a buyorder. When the reverse happens, at the lower circuit everybody wants tosell.''

Brokers and investors apart, even fund managers, faced with the compulsionof showing NAV appreciation or of meeting redemption pressure, as the casemay be, are also forced to place buy/sell orders at the circuit level. Thisonly helps to accentuate the matter for the stock(s) on the circuit, hepoints out.

Arun Kejriwal of Nikko Securities feels that circuit filters cannot be doneaway with completely. ``We need to have a relaxed filter, it could be 15 percent or 20 per cent. We always need to think of the alternative to anyextreme solution.''

``Since the efficacy of the 8 per cent circuit level is being questioned, Ithink we should try the proposed 8+4 per cent circuit filter and see howthat works out. Given the structure of the Indian stock market, I believe inhaving some kind of an artificial check,'' says Hiten Sampat at Parag ParikhFinancial Advisory Services.

``When the markets are going down, small investors press the panic buttoneasily and tend to offload at whatever price they get and inflict moredamage to the market. Circuit filters can also limit such damages,'' saysSampat. According to a broker, since there were past incidents of leakage ofinformation about brokers' positions, circuit filters act as a limitingfactor to the brokers' damages. Also filters act as a check against riggingin a particular counter. Since the regulators are not as efficient inchecking price rigging, circuit filters are good, he adds.