ADVERTISEMENT

Here's how much the stock market must plunge before it gets shut down

The Securities and Exchange Commission's so-called circuit breakers trigger at three key levels.

  • Stocks have
  • The S&P 500 fell by over 4% during the steepest drop of this week's selloff on Monday.
  • The Securities and Exchange Commission's so-called circuit breakers trigger if the index falls by 7%, 13%, or 20% from the previous session's closing price.
ADVERTISEMENT

The stock market is getting rocked this week.

The Dow Jones industrial average on Monday had its biggest intraday fall in history on a point basis and was down more than 1,500 points, or 5%, at its lows of the day. The benchmark S&P 500 fell nearly 4%.

A 7% decline in the benchmark index would be enough to suspend trading, according to the Securities and Exchange Commission's rules. It's a timeout of sorts, in line with the SEC's mission of ensuring markets are orderly and fair.

ADVERTISEMENT

So-called circuit breakers are triggered when market sell-offs are so severe that liquidity is affected.

"A cross-market trading halt can be triggered at three circuit breaker thresholds — 7% (Level 1), 13% (Level 2), and 20% (Level 3)," the rule says. "These triggers are set by the markets at point levels that are calculated daily based on the prior day's closing price of the S&P 500 Index."

If a sell-off triggers a Level 1 or Level 2 circuit breaker before 3:25 p.m., trading is halted for 15 minutes. A similar market decline at or after 3:25 p.m. would not halt marketwide trading.

If a Level 3 circuit breaker were triggered at any time during the day, though, it would halt trading for the rest of the session.

"The biggest question is if we're going to see a 7% trigger this week," said Tobey Wood, a trader and research analyst at Unicom Capital. "We're still in uncharted territory for how the market would respond to the rules."

ADVERTISEMENT

Since they're based on the prior day's closing price (2,681.66 for the S&P 500 on Wednesday), the circuit breakers would trigger at these levels:

FOLLOW BUSINESS INSIDER AFRICA

Unblock notifications in browser settings.
ADVERTISEMENT

Recommended articles

Africa’s richest man Dangote stands between Europe and $17 billion in revenue

Africa’s richest man Dangote stands between Europe and $17 billion in revenue

After months of exchanging blows, Kenya and Uganda takes steps towards resolution

After months of exchanging blows, Kenya and Uganda takes steps towards resolution

Africa's first black billionaire could join $2.9 billion Vivendi bid for MultiChoice

Africa's first black billionaire could join $2.9 billion Vivendi bid for MultiChoice

10 most dangerous African countries in 2024

10 most dangerous African countries in 2024

Russia’s nuclear influence expands further north of Africa

Russia’s nuclear influence expands further north of Africa

Navigating the future: How AI transforms selling on Amazon

Navigating the future: How AI transforms selling on Amazon

Wall decor tips: Transforming your space with style and creativity

Wall decor tips: Transforming your space with style and creativity

Putin's African diplomacy: Security talks with West, Central Africa take centre stage

Putin's African diplomacy: Security talks with West, Central Africa take centre stage

Infinix users get over 35% exclusive discount on Showmax premier league & general entertainment subscription

Infinix users get over 35% exclusive discount on Showmax premier league & general entertainment subscription

ADVERTISEMENT