Trading curb

A trading curb, also known as a circuit breaker, is a point at which a stock market will stop trading for a period of time in response to substantial drops in value. There is no circuit breaker mechanism on the upside which would prevent speculative gains, therefore the trading curb is a form of institutionalized bubble bias.

United States

Circuit breakers

On the New York Stock Exchange (NYSE), one type of trading curb is referred to as a "circuit breaker." These limits were put in place after Black Monday in order to reduce market volatility and massive panic sell-offs, giving traders time to reconsider their transactions.

At the start of each quarter, the NYSE sets three circuit breaker levels at levels of 7% (Level 1), 13% (Level 2), and 20% (Level 3) of the average closing price of the S&P 500 for the month preceding the start of the quarter, rounded to the nearest 50-point interval. For example, during the first quarter of 2014, these levels were 126 points, 234 points, and 360 points, respectively. Depending on the point drop that happens and the time of day when it happens, different actions occur automatically: Level 1 and Level 2 declines result in a 15-minute trading halt unless they occur after 3:25pm, when no trading halts apply. A Level 3 decline results in trading being suspended for the remainder of the day.