A headline says trading paused after a sharp stock-market decline. To understand the pause, ask whether it affected one security or the market broadly. The New York Stock Exchange describes coordinated U.S. market-wide circuit breakers that use the drop in the S&P 500 from its previous close. The threshold and the time determine what happens.
Read the previous close and the clock
The NYSE lists thresholds of 7%, 13% and 20% for the coordinated halt. The first two can trigger a halt of at least 15 minutes before 3:25 p.m. Eastern time in a regular session. Each of those two levels can trigger once in a trading day. At or after that time, those thresholds generally leave trading open. A 20% drop triggers a halt for the rest of the trading day.
With a fictional previous index close of 5,000, the 7% threshold would be 4,650 and the 13% threshold would be 4,350. A level of 4,000 would be 20% below the previous close. Those levels illustrate the arithmetic. An exchange’s daily thresholds use the actual prior close.
Look at a period when the mechanism was used
An exchange and industry working group examined the four U.S. market-wide halts in March 2020. Its report describes activity before and after the pauses and the steps markets used to reopen. That is evidence about how the mechanism operated in a particular stressed market, while the NYSE’s trading information describes the rule readers can use to interpret a halt notice.
A market-wide halt temporarily stops covered trading across venues. The pause can give market participants time before reopening, when prices are established again. The index can continue to move once trading resumes. The halt’s effect on the session and the next price are different questions.
Read the notice as narrowly as it is written
- Check whether the notice covers the market or only one security.
- Identify the index, the previous close and the trigger level.
- Note the time of the halt and whether the notice gives an expected reopening.
The NYSE describes a separate mechanism for price moves in individual securities. A headline about one stock may therefore describe an event quite different from the market-wide halts in the 2020 report.
Sources & further reading
- NYSE trading information on market-wide circuit breakers
Describes the index thresholds and links the operating details for coordinated halts.
- NYSE market-wide circuit breakers FAQ
Explains the minimum pause, the once-per-day limit for Levels 1 and 2 and how reopening works.
- Report of the Market-Wide Circuit Breaker Working Group
Documents four actual market-wide pauses and examines how markets reopened in March 2020.