latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/market-gyrations-push-us-stock-market-s-trip-wires-into-focus-57510136 content
Log in to other products

Login to Market Intelligence Platform

 /


Looking for more?

Contact Us

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

If your company has a current subscription with S&P Global Market Intelligence, you can register as a new user for access to the platform(s) covered by your license at Market Intelligence platform or S&P Capital IQ.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *
  • We generated a verification code for you

  • Enter verification Code here*

* Required

Thank you for your interest in S&P Global Market Intelligence! We noticed you've identified yourself as a student. Through existing partnerships with academic institutions around the globe, it's likely you already have access to our resources. Please contact your professors, library, or administrative staff to receive your student login.

At this time we are unable to offer free trials or product demonstrations directly to students. If you discover that our solutions are not available to you, we encourage you to advocate at your university for a best-in-class learning experience that will help you long after you've completed your degree. We apologize for any inconvenience this may cause.

In This List

Market gyrations push US stock market's trip wires into focus

Street Talk - Ep. 64: Coronavirus jumpstarts digital adoption

Street Talk Podcast

Street Talk - Ep. 63: Deal talks continue amid bank M&A freeze, setting up for strong Q4

Street Talk Podcast

Street Talk - Ep. 62: 'Brutal' outlook for oil demand offers banks in oil patch no relief

Amid Q1 APAC Fintech Funding Slump, Payment Companies Drove Investments


Market gyrations push US stock market's trip wires into focus

A 30-year-old piece of market infrastructure has been thrust back into the spotlight after a recent rout in U.S. equities triggered the mechanism for the first time in years.

Following a weekend in which the spread of the novel coronavirus accelerated and Saudi Arabia and Russia kicked off an oil price war, the S&P 500 plunged March 9 when U.S. stocks opened for trading. The 7% drop that happened just minutes into the trading day set off what is known as a circuit breaker, prompting a 15-minute halt designed to provide investors with a chance to play catch-up before the market resumed trading.

The S&P 500 ended the day down 7.8%, marking the worst trading session for U.S. stocks since the 2008 financial crisis. But stocks had slightly bounced back after the forced stoppage ended around 9:49 a.m. ET, sending a signal to Wall Street that the breaker did its job.

SNL Image

For the first time in 23 years, the U.S. stock market's circuit breakers were triggered March 9 when the S&P 500 plunged 7% soon after trading opened.
Source: AP Photo

"Market-wide circuit breakers enforce a trading pause so that investors have time to absorb information, better understand what's happening in the market and make decisions accordingly," New York Stock Exchange President Stacey Cunningham tweeted in the afternoon of March 9. "The halt in trading this morning means that the market-wide circuit breakers functioned exactly as designed."

Circuit breakers were first introduced in the U.S. stock market after the 1987 market crash now known as Black Monday, which caused stocks to enter an unguarded free-fall. The last time the breakers went off before March 9 was in 1997, according to a NYSE spokesperson.

Under the latest regulations set in the aftermath of the 2010 flash crash, there are three marketwide circuit breakers in addition to limits on how much individual securities can fluctuate in a single day before prompting a halt.

After the 7% threshold that prompts a 15-minute marketwide trading delay is hit, stock exchanges are required to once again stop trading if the S&P 500 falls to 13% before 3:25 p.m. ET. The U.S. stock exchanges that list equity securities, such as those run by NYSE, Nasdaq Inc. and Cboe Global Markets Inc., would then be required to shut down trading for the day if the S&P 500 drops 20%.

"It lets everyone take a breath," said Dave Lauer, co-founder and CEO of Urvin AI, an artificial intelligence company that also offers analytical tools for market structure issues, in an interview. "[Trading] looked smooth to me."

Marketwide circuit breakers offer traders an opportunity to reassess their systems and pending orders as well, according to Security Traders Association President and CEO Jim Toes, who equated it to a pilot taking a plane off of autopilot to make sure everything is working as intended. It was not just the broad-market trip wires that helped stabilize trading early in the day March 9, either, Toes said in an interview.

Throughout any given trading day, individual securities are dealt within constantly updated price bands in a construct known as limit up/limit down. That model came under fire following the Aug. 24, 2015, flash crash, when only about half of the stocks in the S&P 500 opened on time because of the tight range of prices they were allowed to trade within.

But those bands have been changed in the years since to allow for more flexibility during the open and to avoid incidents like the 2015 flash crash, Toes said.

"If August 24th would have occurred yesterday, I don't want to think of what would have happened," Toes said.

The rush of volatility in recent weeks may not be over, though.

Around the world, the coronavirus outbreak is accelerating. State and federal officials in the U.S. have been grappling with how to address the public health crisis, while Wall Street is being directly hit with new cases at a gradually increasing rate.

"Volatility is highly persistent," said Chester Spatt, a finance professor at Carnegie Mellon University who was the SEC's chief economist from 2004 to 2007, in an interview. "Whether the market is up or down, we know there's going to be a lot of volatility for a while."