A big drop in the S&P 500 could lead to a pause on trading
Traders woke up to a sharply lower stock market on Monday morning and a spike in volatility. The Dow DJIA opened 2.7% lower, the S&P 500 SPX opened 4.2% lower and the Nasdaq Composite COMP opened 6% lower. The Cboe Volatility Index VIX was up around 25%.
This quick drop left some traders wondering if we'd see a built-in stock market feature for especially volatile trading days - a circuit breaker.
Circuit breakers temporarily halt trading across all exchanges when a specific security or market index moves too much in either direction. This is meant to slow down panic selling or panic buying.
Circuit breakers have multiple levels that get triggered when the security or market index move a certain pre-set percentage. These levels differ slightly depending on whether its a limit up-limit down circuit breaker for a single stock, or marketwide circuit breaker for the S&P 500.
For the S&P 500, these are the three levels that trigger a circuit breaker:
Level 1: a 7% dropLevel 2: a 13% dropLevel 3: a 20% drop
When the S&P reaches a level 1 or level 2 circuit breaker, trading is paused for 15 minutes. When it reaches level 3, trading is halted for the day.
The last time a circuit breaker was triggered for the S&P 500 was March 18, 2020 during the height of the Covid-19 pandemic selloff. A circuit breaker was triggered on four separate trading days during that selloff. Those days were March 9, 12, 16 and 18. There hasn't been a marketwide circuit breaker since.
The S&P 500 doesn't appear to be in danger of tripping a marketwide circuit breaker in early afternoon trade but remains sharply lower on the day. The index was down 2.7% in recent action near 5,203 after trading at a session low of 5,119.26 shortly after the opening bell.
The Dow remains down around 965 points, or 2.4%, after falling 1,238 points at its session low. The Nasdaq Composite remained down 3%
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