Ask Money

Where are the stock market "circuit breakers"?

Chris Farrell Oct 16, 2008

Question: why did the market not shut down during the freefalls in the past weeks?

i remember that it would shut down as did russia’s in a free fall before this administration. Kate. Los Angeles, CA

Answer: I wondered the same thing. It turns out the market didn’t fall enough.

The New York Stock Exchange established “circuit breakers” following the market crash of October 1987 and the plunge in the stock market in October 1989. (What is it about October and plunging stock prices?) The triggers for the circuit breakers are set at 10%, 20% and 30% of the Dow Jones Industrial average from a level calculated at the beginning of a quarter. Here are the figures for the fourth quarter of 2008.

According to the New York Stock Exchange, in the event of a 3350-point plunge in the Dow (30%) the market would close.

If the Dow dropped by 2200 points (20%), there would be a two hour stop in trading if it happened before 1 PM. (Between 1 and 2 the market would close for an hour and after 2 trading would halt.).

If the Dow falls by 1100 points (10%) before 2 PM trading would stop for an hour. (Between 2 and 2:30 there would be a half-hour stop and after 2:30 the market would stay open.)

Let’s hope we don’t see the kind of one-day drop in the Dow that would trigger the circuit breakers.

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