Circuit Breakers and Other Market Volatility Procedures

The major securities and futures exchanges have procedures for coordinated cross-market trading halts if a severe market price decline reaches levels that may exhaust market liquidity. These procedures, known as circuit breakers, may halt trading temporarily or, under extreme circumstances, close the markets before the end of normal close of the trading session.

The circuit breakers provide for 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.

For example, on October 1, 2008, the average value for the DJIA for the preceding month (September 2008) was used to calculate point levels (rounded to the nearest 50 points). This resulted in the Level One (10%) circuit breaker set at 1,100 points, Level Two (20%) circuit breaker set at 2,200 points, and the Level Three (30%) circuit breaker set at 3,350 points.

* * * * *