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What Are Stock Market Circuit Breaker Rules?
In this article, let’s talk about the stock market circuit breaker rules and how they can case “limit down” moves.
During the stock market crash in March 2020, several times circuit breakers were tripped and trading was halted.
Here’s an example from March 16, 2020, where trading was halted for 15 minutes:
When trading is halted, we call this a “limit down” move.
What Are “Limit Down” Moves And How Does This Work?
Stock market circuit breakers were implemented after the crash in 1987.
During Black Monday in 1987, the markets dropped 20% in one day.!
After this, there were some rules implemented so that this cannot happen anymore. Here’s how it works:
The benchmark for the circuit breaker rules is the SPX, the index that tracks the S&P 500.
So whenever the markets are down 7% from the previous day’s close, that’s when one of these stock market circuit breakers is tripped.
