Description
A circuit breaker is a regulatory risk management tool implemented by exchanges to temporarily suspend trading activity when a predefined threshold of intraday market decline is reached. Its primary function is to mitigate systemic risk, prevent excessive volatility, and maintain orderly market function during periods of extreme market stress.
Thresholds are based on percentage declines in the S&P 500 Index, structured in three tiers : Level 1 (7% decline), Level 2 (13%), and Level 3 (20%). Levels 1 and 2 trigger 15-minute halts if occurring before 3:25 p.m. ET, while Level 3 triggers a trading suspension for the remainder of the day regardless of timing. This mechanism provides a cooling-off period for reassessing macroeconomic conditions, news flow, and portfolio exposures.
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