What you need to know about the stock market’s circuit breakers
This post was updated on March 16 at 10:34 a.m. ET
For the third time in a week, a stock market plunge triggered circuit breakers that temporarily halted trading at the New York Stock Exchange.
Trading stopped for 15 minutes when the S&P 500 fell more than 8% after Monday’s opening bell. At one point, the Dow plunged more than 2,600 points and the Nasdaq Composite Index dropped more than 910 points.
The declines come after the Federal Reserve slashed its benchmark interest rate to zero on Sunday — a move it hasn’t made since the 2008 financial crisis — in response to the coronavirus and announced it would buy $700 billion in Treasury and mortgage bonds.
Here’s a look at how these circuit breakers function and why they were implemented in the first place:
When circuit breakers halt trading
“Marketplace’s” Kai Ryssdal explains that these breakers are supposed to let investors figure out what’s actually happening and stop the market free fall.
Circuit breakers will kick in and halt trading at the following levels:
|Level 1: The S&P 500 declines |
7% from its closing price the day before
|Trading is halted for 15 minutes, unless it’s after 3:25 p.m. Eastern time.|
|Level 2: A drop of 13%||Trading is halted for 15 minutes, unless it’s after 3:25 p.m. Eastern time.|
|Level 3: A drop of 20%||Marketwide trading is halted for the rest of the day.|
When trading has stopped
Trading stopped last Monday and Thursday after the S&P 500 dropped 7%. But before that, the first — and only other time — the New York Stock Exchange halted trading because of circuit breakers was on Oct. 27, 1997, during the Asian financial crisis.
Under different rules at the time, the NYSE hit pause after the Dow Jones declined by about 550 points.
Investors began panic selling after Hong Kong’s benchmark Hang Seng index lost almost 6% overnight, according to CNN.
When circuit breakers were first implemented
Circuit breakers were first put into place after Black Monday, when the Dow plunged 22.6% — its biggest one-day loss in history.
Diana Henriques, author of the book “A First-Class Catastrophe,” told Marketplace that investors were selling because computer-driven strategies told them to sell instead of using economic and political assessments.
So basically, these circuit breakers were put into place to stop panic selling. But they might not be as effective they aim to be.
Henriques said that might actually speed up the panic, because everyone will try to exit the market before the circuit breakers officially kick in.
There are also now dozens of major stock exchanges around the world.
“Trading now observes no borders,” Henriques said. “So, you know, a circuit breaker on a global 24-hour-nanosecond-driven stock market — it’s kind of like a handbrake on a bullet train. Good luck with that.”
COVID-19 Economy FAQs
What’s the outlook for vaccine supply?
Chief executives of America’s COVID-19 vaccine makers promised in congressional testimony to deliver the doses promised to the U.S. government by summer. The projections of confidence come after months of supply chain challenges and companies falling short of year-end projections for 2020. What changed? In part, drugmakers that normally compete are now actually helping one another. This has helped solve several supply chain issues, but not all of them.
How has the pandemic changed scientific research?
Over the past year, while some scientists turned their attention to COVID-19 and creating vaccines to fight it, most others had to pause their research — and re-imagine how to do it. Social distancing, limited lab capacity — “It’s less fun, I have to say. Like, for me the big part of the science is discussing the science with other people, getting excited about projects,” said Isabella Rauch, an immunologist at Oregon Health & Science University in Portland. Funding is also a big question for many.
What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?
Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”
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