Circuit Breakers and Trading Halts
Automatic mechanisms that pause trading, either market-wide during a broad crash or in a single stock during an abnormal move, to let information catch up before trading resumes.
A circuit breaker is a rule that automatically stops trading for a period when price moves exceed a pre-set threshold, on the theory that a pause gives participants time to absorb news and reassess, rather than letting a cascade of automated selling or a liquidity vacuum drive prices further on momentum alone. Two distinct kinds operate in US equity markets.
Market-wide circuit breakers halt trading across the entire market when a broad index (the S&P 500) falls a set percentage from the prior close — 7% triggers a 15-minute pause, 13% another 15-minute pause, and 20% halts trading for the rest of the day. These are rare, blunt instruments meant for genuine market-wide panics, not routine volatility.
Single-stock halts, under the Limit Up-Limit Down mechanism, work differently: each stock has a price band around its recent average price, and if the stock's price tries to trade outside that band and stays there, trading in that one stock pauses briefly — typically five minutes — while the rest of the market keeps trading normally. This targets abnormal moves in an individual name (a fat-finger trade, a sudden rumor, an earnings-related air pocket) without disrupting anything else.
Both mechanisms end with a reopening auction that aggregates buy and sell interest to set a new price before continuous trading resumes, rather than simply flipping trading back on at the last traded price.
Market-wide circuit breakers pause the entire market at set index-decline thresholds (7%, 13%, 20%) for broad panics, while Limit Up-Limit Down halts trading briefly in one stock whose price moves outside a rolling band — both resolve through a reopening auction rather than resuming at the last traded price.
Further reading
- SEC and exchange rulebooks on Limit Up-Limit Down and market-wide circuit breakers