Halt in Trading…..Explained
Why we need circuit breakers
The New York Stock Exchange (NYSE) halted trading for 15 minutes at the open on Monday 3/9/2020 to allow stocks to take a breather and prevent markets from a steep sell off. Both the NYSE and NASDAQ use circuit breakers to either prevent speculative gains or dramatic losses. This financial regulatory instrument allows markets or individual stocks to “cool off” during periods of uncertainty.
The use of circuit breakers dates back to 1988 when markets were seeking stability and an instrument that would keep market transactions from being dramatic. Trading halts are used on exchanges as well as individual company stocks when news announcements are expected, trading is out of balance and even when there is a glitch detected. Currently, thresholds are set at 7%, 13% and 20% of the previous day’s closing. When trading reaches a threshold, trading is halted for 15 minutes. Halts can happen anytime or many times throughout the trading day.
The good news is that trading on the NYSE was briefly halted only once at the opening Monday. Orderly trading followed for the rest of the day. The last time market trading was halted was 1997.
Circuit breakers benefit traders and investors in that they give time for markets to take a breather while investors gather information to make educated decisions.
I know it seems shocking to see MARKETS HALT TRADING on the crawl screen of your television. Hopefully now you know the benefits and purpose of the circuit breakers is to promote orderly market trading. Please feel free to forward this to your friends, colleagues and family who would benefit from this knowledge.
In this market environment, there are many scary stories that may cause concern. Brennan Wealth Advisors is committed to you and guiding a way through this uncertainty. As I celebrate 30 years as a wealth advisor this year, I am grateful to have the opportunity to continue to instill confidence in the lives of our client families.