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Individual Stocks

Selecting Individual Stocks

What are the New York Stock Exchange’s “circuit breaker” rules?

Circuit breaker rules limit steep, unexpected declines in stock prices, as they are being traded, to prevent market price collapse, and to offer some protections to both buyers and sellers. The circuit breakers comprise three levels: Level 1 (a 7% decline between 9:30 A.M. and 3:25 P.M.), Level 2 (a 13% decline between 9:30 A.M. and 3:25 P.M.), and Level 3 (a 20% decline at any time during the trading day). When the NYSE reaches the Level 1 or Level 2 threshold, the NYSE pauses trading for 15 minutes. When the NYSE reaches its Level 3 threshold, all trading activity is halted for the remainder of the trading day. The circuit breaker rules also mandate that each level can only be reached once per day. So if the markets decline by 7%, and after a 15-minute pause, decline by another 7%, trading continues until the next level is reached, and that rule will be used once. If prices slide and the 20% decline level is reached, then trading is suspended until the next trading day. The rules are meant to prevent bottomless declines in stock market prices or severe crashes.



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