When the New York Stock Exchange becomes very volatile and prices drop precipitously, trading is halted. There are three levels, I, II, and III, based on drops in the S&P 500. Each circuit breaker halt stops trading but the length of the trading halt depends on the level. The NYSE instituted the circuit breaker halt in January of 1988, a few weeks after the Black Monday crash. Today the NYSE; Nasdaq, Chicago Mercantile Exchange, CME Group, and other markets have either circuit breakers that match those of the NYSE or, in the case of futures markets, daily price limits that apply for prices changes up and down.
How Long Are Circuit Breaker Halts?
The circuit breaker halt was instituted to help stop panic selling in a stressed market in order to prevent the loss of liquidity which serves to drive prices lower and lower. The three levels for the NYSE are based on benchmark indexes like the S&P 500 for the previous day. The first levels for 7% and 13% drops halt trading for 15 minutes unless they occur after 3:25 pm. The 20% level three drop stops trading for the rest of the day no matter when it occurs.
Circuit Breaker Halt Rules
If the market falls by 7% from the price set at the end of the previous day the circuit breaker halt is for 15 minutes and then trading resumes. If prices continue to fall to 13% trading is again halted for 15 minutes. If prices fall by 20% trading is halted for the rest of the session. The first two levels, 7% and 13% do not stop trading if they occur at the end of the session after 3:25pm. Although the general rule for level 1 and 2 halts is 15 minutes the NYSE, Nasdaq, and other exchanges reserve the right to extend the halt beyond 15 minutes if the situation meets their pre-set criteria.
Limit Up, Limit Down Halts for Commodity Futures
Trading halts for futures for stocks and indexes such as the E-mini S&P 500 are triggered by the S&P 500 falling by 7%, 13%, and 20%. Trading halts for commodity futures are triggered by both upward and downward movements. Unlike how the NYSE and other markets handle stocks with 7%, 13%, and 20% limits across the board, different commodity futures have different limits. Thus, an extreme “up” or an extreme “down” day in commodities may result in some commodity futures contracts be halted and others not being affected. There are times when a major event has a huge effect on an individual commodity. When this happens, the up limit or down limit may be reached on successive days until equilibrium is reached.
Circuit Breaker Halt Trading
When a market falls sufficiently to trip the circuit breaker all trading is halted. No one is able to place or exit from a trade. Trades that were in place before the circuit breaker remain in place. The problem with having an open trade when a trading halt is declared is that the trade can resume significantly higher or lower when trading resumes. Not all trading halts are due to volatility. The SEC can suspend trading for stocks where fraud is suspected. A company can request a halt for News Pending which can be either good or bad news. It is important to maintain discipline in these situations which is easier if you have learned day trading from DayTradeSafe and know how to enter, manage, and exit your day trades.
Stock Halted on Circuit Breaker
While excessive volatility can result in an entire market halting trading for 15 minutes or significantly longer, many times circuit breakers only have to do with an individual stock. The system for preventing security-specific volatility applies to both upward and downward price movement. Stocks listed on the Russell 1000, S&P 500, and Investco PowerShares QQQ ETF that move more than 10% up or down within 5 minutes, any stock worth more than a dollar that moves more than 30% within 5 minutes, and any stock worth less than $1 that moves more than 50% within five minutes are all subject to a trading halt.
Nasdaq Circuit Breaker Halts
The Nasdaq, like the NYSE and many markets throughout the world, introduced trading halts a few weeks after the Black Monday “flash” crash. Like the NYSE, the Nasdaq halts trading for 15 minutes for level one and two price drops and for the remainder of the trading session for level three drops of 20% or more. As with the NYSE the exchange may extend its 15 minute level one and two circuit breaker halts depending o the situation.
Shares Halted on Circuit Breaker
Circuit breakers are designed to stop trading when market panic threatens to take all liquidity out the market. These are market-wide halts. Shares halted on circuit breaker may be because of panic selling but can also be because of price increases. The markets have rules for stocks in the major indexes as well as all stocks, and for stocks selling for less than a dollar. Penny stocks worth less than a dollar need to go up or down 50% within 5 minutes to trigger a circuit breaker while stocks in the S&P 500 only need to change 10% in five minutes to trigger a trading halt.
Circuit Breaker Halt Alert
If you are not actively trading a stock or index you can check at NYSE.com or NasdaqTrader.com to see what stocks have had their trading halted. Day traders can also check with their brokers. And, the SEC publishes a list that includes all stocks for when trading has been suspended. You can find this list at SEC.gov. If you are actively trading a stock you will see that the price has moved dramatically and that, in fact, trading has halted when your charts refresh.