NYSE Circuit-Breaker Levels for Q1 2013

The circuit-breaker levels for the Dow Industrials are listed below.  See NYSE Euronext for more detailed information.  There was to be a shift to using the S&P 500 as the new trigger mechanism, perhaps at 7%, 13% and 20% levels, respectively, corresponding to the levels below, in February 2013, but new information is not yet available. Reviewing the circuit-breakers is a useful task to place trading in perspective and realize that anything can happen in markets at anytime. The circuit-breakers kick in if the markets are experiencing huge sell-off events, crashes if you will, and attempt to calm the situation.

For over a decade now, the trigger for the three halt levels for the the Dow Jones Industrial Average (Dow) were 10%, 20% and 30% declines in one day.  The levels are set for the new quarter by using the closing numbers of the previous month, rounding off to the nearest 50 point level. The limits appear far removed when placed in context of events such as the Flash Crash in May 2010, so securities regulators proposed lower percentages to facilitate more orderly markets in the event of this new style of sharp sell-off.

For Q1 2013, for the first circuit-breaker level, trading is halted for one hour if the Dow drops 1300 points before 2 PM. If the drop occurs between 2 and 2:30 PM, the halt is one-half hour.

For the second circuit-breaker level, trading is halted for two hours if the Dow drops 2650 points before 1 PM. If the drop occurs between 1 and 2 PM, the halt is one-hour. Trading is halted for the remainder of the day if this point drop occurs after 2 PM.

For the most serious third circuit-breaker level, trading is halted for the remainder of the day if the Dow drops at any time over 3,950 points.

Each quarter the circuit-breaker levels are increased so adjustments will occur for Q2. Looking back, say one year ago, the first level was at 1100 points and the level three halt was far lower at 3300 points. For practical purposes, the first level is the one in play if the markets drop into free fall. On the 5/6/10 Flash Crash, the Dow was already down 300 on the day, then flushed over 600 more points, to log a near 1000-point drop, the bulk of it between 2:42 PM and 2:47 PM, five minutes time. The markets recovered the 600-plus-point drop, the flash crash aspect, twenty minutes later, by 3:07 PM. This event makes the hair stand up on the back of your neck.  The idea behind the level one circuit breaker is to have something in place to help when the next flash crash occurs. If the shift to using the S&P occurs, a 7% level one halt would be about a 100-handle drop in the SPX.