Circuit Breaker

Circuit breakers are automatic mechanisms that halt trading during rapid market declines to prevent panic selling.

Market-wide circuit breakers (S&P 500)

• Level 1 (7% decline): Trading halted for 15 minutes
• Level 2 (13% decline): Trading halted for 15 minutes
• Level 3 (20% decline): Trading halted for the rest of the day

These levels are calculated based on the previous day's closing price of the S&P 500.

Individual stock halts (LULD)

The Limit Up-Limit Down (LULD) mechanism halts individual stocks that move too far from their recent average:

• Tier 1 (S&P 500, Russell 1000): 5% bands
• Tier 2 (other NMS stocks): 10% bands
• If price remains at the limit for 15 seconds, a 5-minute trading pause triggers

History

Circuit breakers were implemented after the 1987 Black Monday crash and have been triggered several times, including multiple times during the March 2020 COVID-19 selloff.

Purpose

Allow investors to digest information and make rational decisions rather than panic-selling into a free-fall.