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Home » Business » Stock Market Circuit Breakers: What are they? How does Circuit Breaker work?

Stock Market Circuit Breakers: What are they? How does Circuit Breaker work?

Circuit breakers were first approved by the U.S. Securities and Exchange Commission following the market crash that happened on October 19, 1987.

By Newsd
Updated on :
Asian stocks fall, oil prices rise on Ukraine invasion fears

Stock Markets have been using “circuit breakers” to curb panic selling, and it might be time for crypto exchanges to follow the idea. On March 9, trading on the New York Stock Exchange was suspended for 15 minutes. This was due to the Standars & Poor’s (S&P ) 500 Index shedding more than 7% in the morning trading hours.

A circuit breaker is a mechanism that suspends trading for a period of time based on certain market triggers, like Monday’s 7% decline, it is generally done to prevent traders from behaving in a way that causes market slides.

Circuit breakers were first approved by the U.S. Securities and Exchange Commission following the market crash that happened on October 19, 1987.

That day is also popularly known as “Black Monday,” as the Dow Jones Industrial Average dropped 508 points (22.6%).

New York Stock Exchange has “three circuit breaker thresholds that measure a decrease against the prior day’s closing price of the S&P 500 Index – 7% (Level 1), 13% (Level 2), and 20% (Level 3).”

The first two levels require a 15-minute restriction on trading. At the level 3 threshold, the exchange suspends trading for an entire day.

BTC prices have dropped by more than $1,200 in the last couple of days, many experts say that crypto exchanges should implement a similar sort of mechanism. Catherine Coley, CEO of Binance.US, tweeted yesterday.

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