Circuit Breakers Kick In
I meant to put this up last Friday but got a little tied up… Anyway, there’s been a lot of markets halted since this whole fiasco started last August, but the majority of market closures and halts occur in often overlooked, developing markets like Russia and Indonesia (I put up a post about it here a while back: Let’s Just Close the Markets?). You don’t often see the US market main index futures or equity exchanges halt trading. Nothing should come as surprising in the financial markets these days, times when the forward looking volatility of the US markets is at its highest ever levels (right) and a day of 5% losses or gains is commonplace, but I wanted to post Friday’s major index halts because it’s a little out of the “ordinary” to see this happen. The last time an NYSE circuit breaker was triggered was during the Asian financial crisis in October 1997 in an attempt to stem similar panic-drive losses to those experienced on Black Monday in 1987, when the circuit breakers and futures limit-downs were first instantiated. On Friday we didn’t see the NYSE halt, but overnight we did see the futures limit-down during the early hours of London trading. Below are the S&P 500 (left) and Dow Jones Industrial Average (right) futures contracts intra-day price action plots for Friday October 24.
Like I keep saying, crazy times we’re livin’ in these days… In case anyone’s interested, the major US equity and futures exchanges circuit breakers and limit-down conditions are as follows.
Level One Halt: A 1,100-point drop in the DJIA before 14:00 will halt trading for one hour; for 30 minutes if between 14:00 and 14:30; and have no effect if at 14:30 or later unless there is a level one halt.
Level Two Halt: A 2,200-point drop in the DJIA before 13:00 will halt trading for two hours; for one hour if between 13:00 and 14:00; and for the remainder of the day if at 14:00 or later.
Level Three Halt: A 3,350-point drop will halt trading for the day regardless of when the decline occurs.
S&P 500: When there is a 5% drop or a 60-point slide in the S&P 500 stock index futures prior to the opening of regular trading the limit-down threshold kicks in.
DJIA: When there is a 5% drop or a 550-point slide in the Dow Jones industrial stock index futures prior to the opening of regular trading the limit-down threshold kicks in.
NASDAQ 100:When there is a 5% drop or an 85-point slide in the NASDAQ 100 stock index futures prior to the opening of regular trading the limit-down threshold kicks in.
Once regular trading commences, the next applicable trading limit shall be in effect. Additionally, if there is a halt declared on the primary securities market or the NYSE, trading will halt in all domestic stock index futures and options, whether a limit has been hit or not.
The Hang Seng index (the major index tracking the performance of the Hong Kong stock market) today had its largest single day loss since the Asian crisis in 1987, the last time the NYSE circuit breakers kicked in. What does today hold for the US? I don’t think I want to know…