3 Quick Points to Simplify Circuit Breakers (In the Stock Market)
A regulatory measure you should understand as an investor
On March 9th, 2020, 6 minutes after trading began on U.S. stock exchanges, trading came to a stop. The S&P 500 had plummeted 7%, which is what triggered this halt known as a circuit breaker. A circuit breaker represents the threshold at which is trading is halted market-wide for a single-day decline in the S&P 500.
The U.S. Securities and Exchange Commission (SEC) is the overseer of the market-wide circuit breaker rules across exchanges in the United States. Circuit breakers were adopted after the occurrence of the Black Monday crash of October 19th, 1987. The market-wide halt of trading on March 9th was the first time since the mini-crash of October 27th, 1997.
With the growing coronavirus outbreak being one of the causes triggering the circuit breaker on March 9th, it was also caused by Saudi Arabia slashing oil prices for April as retaliation against Russia not willing to cut their output. Circuit breakers assist with slowing down the markets to avoid unnecessary losses. The first level of a circuit breaker is triggered by a 7% plummet in the S&P 500, and there are two other levels. There is also a single-stock circuit breaker. Critics of circuit breakers see them as disruptive.
