NYSE Circuit Breaker to Prevent Crash

Some people may be worry with the possibility of crash in Dow Jones as blogged before "Dow Jones 1987 and 2007: crash then, crash now".

It won't be happening now since NYSE has introduced a system called "Circuit Breaker".

An imposed pause in trading that permits buyers and sellers time to assimilate incoming information and make investment choices. Circuit breakers promote investor confidence by giving investors time to make informed choices during periods of high market volatility.

And there's a set of rules approved by the US Securities and Exchange Commision.

The securities and futures markets have circuit breakers that provide for brief, coordinated, cross-market trading halts during a severe market decline as measured by a single day decrease in the Dow Jones Industrial Average (DJIA). There are three circuit breaker thresholds—10%, 20%, and 30%—set by the markets at point levels that are calculated at the beginning of each quarter. The formulas for these thresholds are set forth in the New York Stock Exchange (NYSE) Rule 80B.

Meaning that the system will halt a few moments until the market neutralised as can be seen in this example.

The halt for a 10% decline would be one hour if it occurred before 2 p.m., and for 30 minutes if it occurred between 2 and 2:30, but would not halt trading at all after 2:30. The halt for a 20% decline would be two hours if it occurred before 1 p.m., and between 1 p.m. and 2 p.m. for one hour, and close the market for the rest of the day after 2 p.m. If the market declined by 30%, at any time, trading would be halted for the remainder of the day.

Full description and example of Circuit Breaker >>>

In response to the market breaks in October 1987 and October 1989 theNew York Stock Exchange instituted several circuit breakers to reducemarket volatility and promote investor confidence. The following isa list and brief description of these circuit breakers, and the currentlevels.