A Reminder On Market-Wide Circuit Breakers: A 7%+ Market Drop Is Needed To Halt Trading

Tyler Durden's picture

As a quick reminder, the old marketwide circuit-breaker system where a drop of over 2,400 points in the DJIA was needed to close the market after 2 pm no longer exists. Instead, the SEC revised its market-wide circuit breakers as follows...

Revised Market-Wide Circuit Breakers - The securities and futures exchanges have procedures for coordinated cross-market trading halts if a severe market price decline reaches levels that may exhaust market liquidity. These procedures, known as market-wide circuit breakers, may halt trading temporarily or, under extreme circumstances, close the markets before the normal close of the trading session.

 

Under the revised rules approved by the SEC, market-wide circuit breakers will provide for cross-market trading halts during a severe market decline as measured by a single-day decrease in the S&P 500 Index. A cross-market trading halt can be triggered at three circuit breaker thresholds—7% (Level 1), 13% (Level 2), and 20% (Level 3). These triggers are set by the markets at point levels that are calculated daily based on the prior day’s closing price of the S&P 500 Index.

 

A market decline that triggers a Level 1 or Level 2 circuit breaker before 3:25 p.m. will halt market-wide trading for 15 minutes, while a similar market decline “at or after” 3:25 p.m. will not halt market-wide trading. A market decline that triggers a Level 3 circuit breaker, at any time during the trading day, will halt market-wide trading for the remainder of the trading day.

 

These revisions to the market-wide circuit breakers will be implemented on February 4, 2013. Until then, market-wide circuit breakers will continue to operate under the old market-wide circuit breaker rules which use: circuit breaker thresholds of 10% (Level 1), 20% (Level 2), and 30% (Level 3); and the Dow Jones Industrial Average as the reference index to measure daily market declines.

We only note the above as the market suddenly seems very intent on sending Bernanke a loud message: Untaper now, or the wealth effect gets it.