By coinnews 
00:00:06.399 Speaker A
Recent volatility has brought renewed focus on a little used market mechanism that was born out of the 1987 Black Monday stock market crash. I’m Jared Blickre, host of stocks and translation, and today we’re going to break down circuit breakers. So let’s go to the definition first. A market circuit breaker is something that temporarily pauses trading during rapid market declines, helping investors calm down and preventing panic selling. That’s the theory anyway. And let me go over some of the thresholds that have to be met. We’re talking about the S&P 500 here, which is a benchmark for the United States stock market. A level one decline happens if the stock market drops 7%, and it is then halted for 15 minutes. If it happens after 3:25 p.m., so if you drop 7% by uh 3:30 p.m., you just continue to the end of the trading day. Level two is a little bit more serious. If you drop 13%, you halt another 15 minutes. And if it happens before 3:25, that is the case. If it happens after, you do not halt at all. Now, if you go down 20%, which could happen just after 30 minutes, if you have two prior trading holds. If it’s 10:00 a.m. and you go down 30 20%, you close up shop for the rest of the day. Same thing. If it’s 3:59, you close up shop for that one extra minute, and uh you don’t have any time constraint with that level three drop. Now, we have seen a few of these play out. And as I mentioned in the beginning, this was born out of the 1987 uh Black October market crash. And so we have October 27th, 1997, 2:35 p.m., we got that very first one. And guess what, the full day return that day was down 7.2%. So if you remember our other slide, uh it was 7% down that was the threshold, and we managed to close a little bit off of that into the close that day. Then we didn’t see them for another what, 23 years? It was the depths of the pandemic, and on March 9th, it was a Monday in 2020, I remember it well, 9:34 a.m. we got another circuit breaker. That day, we ended up down 7.6%. Then a few days later, we got another one at 9:35. We were down 9 and a half percent that day. Then the next week, we were down at 9:30 a.m. The market opened and just at like that, 7% down, the market closed uh just seconds after opening. That day, the market was down 12%. And then just a couple days later, we got the last in the series. That happened at roughly 1:00 p.m., 12:56 p.m., and we ended up down a little bit less than 7% that day, down 5.2%. So we’ll never know what the uh what the experience would have been like without these circuit breakers, but I should also mention that we have these for individual stocks. They’re called limit up, limit down. And we saw a lot of these not only in the pandemic, but also in the GameStop Reddit phenomenon that went uh in the year after that. So you can have circuit breakers in individual stocks, and it depends on their dollar amount and how much they’re moving, as well as the index at whole. So tune into stocks and translation for more jargon busting deep dives. New episodes on Tuesdays and Thursdays on Yahoo Finance’s website, or wherever you find your podcast.
00:07:10.179 Speaker B
Thanks, Jared.