U.S. Stock Index Circuit Breaker Mechanism

In order to prevent excessive short-term market fluctuations, some exchanges use an approach—circuit breaker. In the case of U.S. stock indices, trading halts occur when specific conditions are met. These conditions are divided into three levels:

Level 1: A 7% decline triggers a 15-minute trading halt.

Level 2: A 13% decline triggers a 15-minute trading halt.

Level 3: A 20% decline halts trading for the remaining of the day.

Levels 1 and 2 only apply before 3:25 p.m. EST. After that time, only the Level 3 threshold is active.

Circuit Breaker for Individual U.S. Stocks

Individual U.S. stocks also have a circuit breaker mechanism. The specific triggers vary depending on the stock’s classification and its closing price on previous day. Once triggered, trading halts for 5 minutes.

• Tier 1 Stocks: Includes S&P 500 and Russell 1000 components.
• Tier 2 Stocks: All other stocks not classified as Tier 1.

Unlike index circuit breakers, which use the closing price on previous day as the reference, individual stock circuit breakers are triggered based on the average price over the past five minutes of trading.

Circuit Breakers in Taiwan’s Market

While The “Price Limit Mechanism” is apply to Taiwan’s listed stock market, emerging stock market (OTC) in Taiwan do not have price limits. Instead, they use circuit breakers to manage volatility.

For Taiwan’s emerging stock market , the circuit breaker limit is set at 50%, but note that the reference price is not the closing price on previous day. Instead, it is based on the average price during the trading session on previous day.

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