On March 16, 2020, the S&P 500 index opened with a circuit breaker after falling 7%. U.S. stocks suspended trading for 15 minutes. This was the third time that the circuit breaker mechanism was triggered in U.S. stocks in March. So why is it said that and Buffett have witnessed it four times? That’s because after the US stock circuit breaker mechanism was launched, the first circuit breaker was on October 27, 1997. Adding the three circuit breaker this month, a total of four circuit breaker were triggered. History is rare, so we were lucky enough to witness history three times with the stock god.
1. Why does the US stock market have a circuit breaker
The story begins on October 19, 1987. On that day, the New York stock market experienced the largest crash in history. The Dow Jones Industrial Index plummeted 22.6%. US stocks were traded on margin. System, and there is no limit on the price increase or decrease. Within one day, many people lost all their money and became destitute. And this day happens to be Monday, so it is called in history - " Black Monday ".
Later, every day when the stock market fell sharply, it was called Black Week (Monday, Tuesday, Wednesday, Thursday, and Friday). The U.S. government saw that this was not going to work. If there was a big crash and so many people went bankrupt, they had to find a way to add an insurance mechanism to the market. So in 1988, the U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission approved the circuit breaker mechanism for the New York Stock Exchange and the Chicago Mercantile Exchange . The fusing mechanism is that the United States has added a section of fuse to US stocks. Once the voltage is too high, the fuse will blow and cause a power outage.
2. What is the circuit breaker mechanism
The so-called circuit breaker mechanism can be understood as the automatic suspension mechanism. When the stock market volatility reaches a certain range, the exchange will suspend trading for a few minutes or for the whole day to control risks.
Okay, let’s talk in human terms and give an example.
For example,
You like to watch TV series
, but your TV becomes very hot after playing for more than 3 hours and is easily burned out.
So, one day you were happily watching a TV series and forgot the time.
Suddenly your mother appeared and unplugged the power.
Because you had been watching the TV series for more than three hours, your mother unplugged the power and let the TV cool down. , otherwise the TV will burn out. In the
example, your mother's action of unplugging the power supply is a fuse mechanism. By unplugging the power supply, you can wait for a while and watch it again later, which can ensure that your TV has a longer service life.
The same is true in the stock market. Through the circuit breaker mechanism, the market is suspended from trading, giving the market a cooling-off period, preventing investors from being overly panicked or overly excited, reducing irrational trading, and reducing large market fluctuations.
3. What are the specific rules of the US stock circuit breaker mechanism?
First, let’s review the trading hours of US stocks , and the regular trading hours of US stocks are: Monday to Friday 9:30 am to 4:00 pm, that is, 9:30 pm to 4 am Beijing time (this is daylight saving time) time, winter time is delayed by one hour). In addition to this, US stocks also have pre-market and after-market trading, which are unconventional trading hours. US stocks have a circuit breaker mechanism during regular trading hours and non-regular trading hours, but the circuit breaker rules are different in the two time periods.
1, circuit breaker mechanism during regular trading hours (9:30-16:00).
only has a circuit breaker for falling prices, but no cap for rising prices.
At first, the US stock market circuit breaker mechanism was based on the Dow Jones Industrial Index. In 2012, it was modified to become the S&P 500 Index as the circuit breaker benchmark index. So it should be noted here that in , the market will suspend trading only if the decline in , the S&P index, and reaches the circuit breaker standard, and other indexes will not be circuit breaker if they fall.
There are three levels of circuit breaker.
The S&P 500 index fell by 7%, triggering the first-level circuit breaker, and all US stocks were suspended for 15 minutes.
The S&P 500 index fell 13%, triggering a second-level circuit breaker and suspending trading in all U.S. stocks for 15 minutes.
The S&P 500 index fell 20%, triggering the third level circuit breaker, and all US stocks terminated trading that day.
Note: The time for triggering the circuit breaker at the first and second levels of
is from 9:30 to 15:25. After 15:25 until the market closes, trading will not be suspended even if the circuit breaker is triggered. The first and second level fuses of
will only be triggered once a day.
2. The circuit breaker mechanism during unconventional trading periods
The circuit breaker mechanism during this time period is much simpler. As long as the U.S. stock index futures rise or fall by 5%, the circuit breaker mechanism will be triggered. If
rises or falls by 5% during this period, the circuit breaker mechanism will be triggered.
This is why in recent days, before the A-share market opened this morning, we heard media reports that US stock index futures triggered a circuit breaker and suspended trading.
Little easter egg
Do you know? U.S. stocks and individual stocks also have a circuit breaker mechanism. Although U.S. stocks have no limit on the rise or fall, if a stock rises or falls 10% within 5 minutes, trading will be suspended for 15 minutes. This is also to give investors a cooling-off period and reduce the risk of illegal trading. Trade rationally.
