Circuit Breakers

NYSE Circuit Breakers

In response to the market breaks in October 1987 and October 1989, the New York Stock Exchange instituted circuit breakers to reduce volatility and promote investor confidence. By implementing a pause in trading, investors are given time to assimilate incoming information and the ability to make informed choices during periods of high market volatility. In 2012, in connection with its approval of the Regulation NMS Plan to Address Extraordinary Market Volatility, commonly referred to as the Limit Up – Limit Down Plan, the SEC approved amendments to Rule 80B (Trading Halts Due to Extraordinary Market Volatility) that revise the halt provisions and circuit-breaker levels. Amended Rule 80B is operative during the pilot period of the Limit Up – Limit Down Plan.

Rule 80B

Effective April 8, 2013, amended Rule 80B will be in effect. Amended Rule 80B replaces:

• the DJIA with the S&P 500 as the benchmark index for measuring a market decline;

• the quarterly calendar recalculation of Rule 80B triggers with daily recalculations; and

• the 10%, 20%, and 30% market decline percentages with 7%, 13%, and 20% market decline percentages.

Amended Rule 80B also modifies:

• the length of the trading halts associated with each market decline level; and

• the times when a trading halt may be triggered.

Specifically, the circuit-breaker halt for a Level 1 (7%) or Level 2 (13%) decline occurring after 9:30 a.m. Eastern and up to and including 3:25 p.m. Eastern, or in the case of an early scheduled close, 12:25 p.m. Eastern, would result in a trading halt in all stocks for 15 minutes. If the market declined by 20%, triggering a Level 3 circuit-breaker, at any time, trading would be halted for the remainder of the day.

A Level 1 or Level 2 halt can only occur once per trading day. For example, if a Level 1 Market Decline was to occur and trading was halted, following the reopening of trading, the NYSE would not halt the market again unless a Level 2 Market Decline was to occur. Likewise, following the reopening of trading after a Level 2 Market Decline, the NYSE would not halt trading again unless a Level 3 Market Decline were to occur, at which point, trading in all stocks would be halted until the primary market opens the next trading day.

 

The rule filing is available via the following link.

The approval order is available via the following link.