Stock Market Circuit Breakers
Circuit breaker levels – what are they – why we have them
What are circuit breakers?
Stock market circuit breakers are single-day trading thresholds that halt market-wide trading when reached by the S&P 500 index. They’re a mechanism that is in place to slow panic selling, and began being implemented after Black Monday.
Circuit breaker levels?
There are three circuit breaker levels.
- Level 1 is triggered by a 7% decrease in the S&P 500 against the previous day’s close, trading is halted for 15 minutes if it is before 3:25 p.m. EST. If it is after 3:25 p.m. trading continues.
- Level 2 is triggered by a 13% decrease in the S&P 500 against the previous day’s close, trading is halted for 15 minutes if it is before 3:25 p.m. EST. If it is after 3:25 p.m. trading continues.
- Level 3 is triggered by a 20% decrease in the S&P 500 against the previous day’s close. Trading is halted until the next trading day.
Why we have circuit breakers?
Circuit breakers arose after the October 1987 stock market crash known as “Black Monday”. The Dow Jones Industrial Average dropped 22.6% in one day impacting markets outside the US. This caused regulators to get involved and implement triggers to halt trading with the idea that halting trading may slow panic selling. Since circuit breakers were implemented they have been triggered from time to time but not on an often basis.
For extensive details more information can be found at the NYSE FAQ sheet or at the NASDAQ Q&A sheet