How do circuit breakers work in the US stock market?
US market-wide circuit breakers halt all exchange trading for 15 minutes when the S&P 500 drops 7% or 13% in a day, and close trading early if a 20% decline is reached, to prevent panic-driven disorderly markets.
Circuit breakers in the US market are coordinated mechanisms designed to pause trading across all exchanges when price declines reach predetermined thresholds, giving market participants time to process information and reducing the risk of disorderly, panic-driven selling cascades.
Market-wide circuit breakers are triggered by declines in the S&P 500 from its prior-day closing price. Three levels exist. A Level 1 decline of 7% triggers a 15-minute halt in trading on all US exchanges. If trading resumes and the decline reaches 13% (Level 2), a second 15-minute halt occurs. If the index falls 20% (Level 3), trading is halted for the remainder of the trading day. Level 1 and Level 2 halts are only triggered before 3:25 pm Eastern time; declines after that point do not trigger the 15-minute pauses, though Level 3 can still halt the close. These rules were updated and tightened after the 2010 "Flash Crash."
Individual stocks also have circuit breakers under the Limit Up-Limit Down (LULD) rule, implemented by the SEC in 2012. For stocks in the S&P 500 and Russell 1000, trading is paused for five minutes if the price moves more than 5% (10% for other listed stocks) from a rolling reference price during regular trading hours. Wider bands apply in the first and last 25 minutes of the trading session when prices are more volatile.
US exchanges also use clearly erroneous trade rules that allow exchanges to cancel trades executed at prices far outside the prevailing market, protecting participants from obvious fat-finger or algorithmic errors that reach the tape.
The most famous activation of market-wide circuit breakers in recent history was during the COVID-19 market sell-off in March 2020, when Level 1 halts were triggered four times in eight trading days.