Circuit breaker

Circuit breakers are mechanisms implemented by exchanges to temporarily suspend market-wide trading when market prices experience rapid and substantial declines. This is distinct from Limit up-limit down (LULD), which is a single stock trading halt. Circuit breakers are intended to prevent panic-selling, allow time for information dissemination, and enable market participants to make informed decisions.

In U.S. equities markets, market-wide circuit breakers are triggered by declines in the S&P 500 Index at three thresholds:

• Level 1: A 7% decline from the prior day's closing price, resulting in a 15-minute trading halt if it occurs before 3:25 p.m. ET.
• Level 2: A 13% decline, also leading to a 15-minute halt if it occurs before 3:25 p.m. ET.
• Level 3: A 20% decline, halting trading for the remainder of the trading day, regardless of the time it occurs.

These thresholds are recalculated daily based on the previous day's closing value of the S&P 500 Index. By implementing circuit breakers, exchanges aim to provide a cooling-off period during significant market downturns.