A circuit breaker is a regulatory trigger that temporarily halts trading on all U.S. equities, options, and futures exchanges, and is used primarily to stop panic-selling as well as manic-buying.
Thresholds are set by the Securities and Exchange Commission (SEC), and are triggered when those predetermined percentages are crossed. Circuit breakers are calculated daily based upon the prior day’s value of the S&P 500 index.
There are three circuit breaker thresholds:
Level 1: S&P 500 drops 7% from its closing price the previous day. This will trigger a 15 minute trading halt.
Level 2: S&P 500 drops 13% from its closing price the previous day. This will trigger an additional 15 minute trading halt.
Level 3: S&P 500 drops 20% from its closing price the previous day. This will suspend trading for the rest of that day.
Trading halts are governed by the Securities Exchange Act of 1934, as part of Regulation NMS from the U.S. Securities and Exchange Commission (SEC), and Financial Industry and Regulatory Authority (FINRA) Rules 6120 and 6121.
