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By Dr. David E. Marcinko MBA
Yesterday, within a few minutes of the open, the S&P dropped 7% triggering a Level 1 circuit breaker that paused trading for 15 minutes.
Had the S&P declined 13%, trading would’ve paused another 15 minutes.
Another 20% down and it would have closed.
HISTORY
- Circuit breakers launched after 1987’s Black Monday when the Dow fell 22.6%.
- In 2012, the markets closed because of Storm Sandy.
- Rules were revamped in 2013 after failing to prevent 2010’s “flash crash.”
LINK: https://lnkd.in/eJNz355
And so, according to NYSE President Stacey Cunningham: “I’m seeing markets act normally. They react to uncertainty … they become more volatile.”
GOING FORWARD: Uncle Sam hasn’t yet enacted crisis measures like it did during the financial crisis. Regulators are more alert (take the Fed’s emergency rate cut and $50 billion infusion to its overnight lending). Banks appear to be in relatively good shape. Your thoughts and comments are appreciated.
Assessment: Your thoughts are appreciated.
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BUSINESS, FINANCE AND INSURANCE TEXTS FOR DOCTORS:
THANK YOU
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Filed under: Investing | Tagged: circuit breakers, NYSE, Stacey Cunningham, stock markets |
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Circuit breakers temporarily halt trading across all exchanges when a specific security or market index moves too much in either direction. This is meant to slow down panic selling or panic buying.
Circuit breakers have multiple levels that get triggered when the security or market index move a certain pre-set percentage. These levels differ slightly depending on whether its a limit up-limit down circuit breaker for a single stock, or marketwide circuit breaker for the S&P 500.
For the S&P 500, these are the three levels that trigger a circuit breaker:
When the S&P reaches a level 1 or level 2 circuit breaker, trading is paused for 15 minutes. When it reaches level 3, trading is halted for the day.
The last time a circuit breaker was triggered for the S&P 500 was March 18, 2020 during the height of the Covid-19 pandemic selloff. A circuit breaker was triggered on four separate trading days during that selloff. Those days were March 9, 12, 16 and 18. There hasn’t been a marketwide circuit breaker since.
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