List of Stock Market Circuit Breakers

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August 7 - 1999 Crash Report #5 Circuit Breakers Broken Down

After the 1987 crash the NYSE took many steps to try an avoid a repeat. "Adopted on Oct. 19, 1988, circuit breakers originally halted trading for one hour with a 250-point drop and two hours with a 400-point decline.". Circuit breakers are a set of rules and operations which have been implemented in an attempt to avoid market meltdowns. Things such as the "uptick/downtick rule" and "sidecar rule" are more specific but the currently the rules are as follows: Basic Rule: When the DJIA drops 350 points the market is halted for 30 minutes. When it drops 550 points it is halted for 60 minutes. Some additions to these rules: -After 2pm the 550 point drop rule would only trigger a 30 minute halt, but after 3pm the same rule ends trading for that day. -After 3 p.m. the 350 point drop is eliminated. The extreme thresholds to these rules are updated quarterly. In essence they maintain a 10, 20 and 30% standard. - 10% drop: 1 hour halt, no affect after 2:30pm. - 20% drop: 2 hour halt before 1pm, 1 hour halt before 2pm, permanent halt for the day after 2pm. - 30% drop: Would be nice, but halts trading for the remainder of the day.

In the 90's circuit breakers have only been triggered one time; October 27, 1997. Many people debate the validity of circuit breakers but the true worth of their mechanics has yet to be tested. I actually applaud certain elements of control such as the "Uptick/Downtick" rule which helps constrict fluctuations in index arbitrage investing (major problem in crash of 87), but I have doubts over the definite benefits of the triggering points for a complete market halting. In 1999 with such an enormous amount of speculative investment taking place what will unfold if the DOW was to plummet 350 points by 10am, then it was halted? The purpose of the breakers may in fact bring sell orders to a boil during the = hour halt and allow buy orders to be pulled. This would destroy the logic behind circuit breakers. If the 550 mark were to be met and another halt was to occur (say at 12pm), then what would happen? There are 2 scenarios:

1) People would want to buy because of the apparent "value" now in the markets. 2) The 9 year bull market would be killed. Fear would consume the markets and the next triggering circuit breaker point would be met in about 10 minutes of trading.

In 1999 the likelihood of a 350 point drop in the DOW is highly possible. No one can offer a clear theory on whether or not circuit breakers will help or hurt the markets because in the 90's they have in fact only been triggered once. Lets just say if the markets do slide over 300 points I would want to sell before the halt. This is my opinion, but after the halt another halt may happen quicker than most traders can log onto their online accounts. B. Willett

-- Helium (Heliumavid@yahoo.com), October 15, 1999

Answers

to the top

-- (not@now.com), October 15, 1999.

Thaks forthis Helim - wasn't sure how they worked.

As of now 10am in denver CNBC (ha!) are reporting "curbs are in" on the dow[n] which is heading for 10k rapidly...

-- Andy (e022310@den.galileo.com), October 15, 1999.


Not sure of the exact link, but this is from the www.nyse.com websight in Press Releases:

NYSE Announces Fourth-Quarter 1999 Circuit-Breaker and Trading-Collar Levels

NEW YORK, Sept. 30, 1999 -- The New York Stock Exchange announced circuit-breaker and trading-collar trigger levels for fourth-quarter 1999, effective Friday, Oct. 1, will continue to remain the same as for the third quarter. Circuit-breaker points represent the thresholds at which trading is halted market wide for single-day declines in the Dow Jones Industrial Average.

The 10, 20 and 30 percent decline levels, respectively, in the DJIA remain as follows:

7 A 1,050-point drop in the DJIA before 2 p.m. will halt trading for one hour; for 30 minutes if between 2 p.m. and 2:30 p.m.; and have no effect if at 2:30 p.m. or later.

7 A 2,150-point drop in the DJIA before 1 p.m. will halt trading for two hours; for one hour if between 1 p.m. and 2 p.m.; and for the remainder of the day if at 2 p.m. or later.

7 A 3,200-point drop will halt trading for the remainder of the day regardless of when the decline occurs.

Trading collars, which restrict index arbitrage trading, will be triggered during fourth-quarter 1999 when the DJIA moves 210 points or more above or below its closing value on the previous trading day and removed when the DJIA is above or below the prior day's close by 100 points.

Trading collars will be implemented as follows:

7 A decline in the DJIA of 210 points or more will require all index arbitrage sell orders of the S&P 500 stocks to be stabilizing, or sell plus A market order to sell "plus" is a market order to sell a stated amount of a stock provided that the price to be obtained is not lower than the last sale if the last sale was a "plus" or "zero plus" tick, and is not lower than the last sale plus the minimum fractional change in the stock if the last sale was a "minus" or "zero minus" tick. A limited price order to sell "plus" would have the additional restriction of stating the lowest price at which it could be executed. , for the remainder of the day, unless on the same trading day, the DJIA advances 100 points or less below its previous day's close.

7 An advance in the DJIA of the 210 points will require all index arbitrage buy orders of the S&P 500 stocks to be stabilizing, or buy minus A buy "minus" is a market order to buy a stated amount of a stock provided that the price to be obtained is not higher than the last sale if the last sale was a "minus" or "zero minus" tick, and is not higher than the last sale minus the minimum fractional change in the stock if the last sale was a "plus" or "zero plus' tick. A limited price order to buy "minus" would have the additional restriction of stating the highest price at which it could be executed. , for the remainder of the day, unless the DJIA retreats to 100 points or less above its previous day's close.

7 The restrictions will be re-imposed each time the DJIA advances or declines 210 points from its previous day's close.

Circuit-breaker levels are set quarterly as 10, 20 and 30 percent of the DJIA average closing values of the previous month, rounded to the nearest 50 points. The percentage levels were first implemented in April 1998 and are adjusted quarterly on Jan. 1, April 1, July 1 and Oct. 1. The revised collars are also calculated quarterly, as 2 percent of the average closing value of the DJIA for the last month of the previous quarter, rounded down to the nearest 10 points. They are removed when the DJIA advances or retreats from the prior day's close to less than or equal to half of the 2 percent value, rounded down to the nearest 10 points.

1.A market order to sell "plus" is a market order to sell a stated amount of a stock provided that the price to be obtained is not lower than the last sale if the last sale was a "plus" or "zero plus" tick, and is not lower than the last sale plus the minimum fractional change in the stock if the last sale was a "minus" or "zero minus" tick. A limited price order to sell "plus" would have the additional restriction of stating the lowest price at which it could be executed.

2.A buy "minus" is a market order to buy a stated amount of a stock provided that the price to be obtained is not higher than the last sale if the last sale was a "minus" or "zero minus" tick, and is not higher than the last sale minus the minimum fractional change in the stock if the last sale was a "plus" or "zero plus' tick. A limited price order to buy "minus" would have the additional restriction of stating the highest price at which it could be executed.



-- Clyde (clydeblalock@hotmail.com), October 15, 1999.


Helium, nice try but Clyde has the real numbers. We posted these a couple times on other threads but this is the first place where the thread title sez it.

C

-- Chuck, a night driver (rienzoo@en.com), October 16, 1999.


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