Trading curb
A trading curb, also known as a circuit breaker, is a point at which a stock market will stop trading for a period of time in response to substantial drops in value.
Circuit breakers
On the New York Stock Exchange, one type of trading curb is referred to as a "circuit breaker". These limits were put in place after Black Monday in order to reduce market volatility and massive panic sell-offs, giving traders time to reconsider their transactions.
There are three circuit breaker levels as of the second quarter of 2006, based on changes in the Dow Jones Industrial Average:
Trading curbs on Dow futures contracts traded on the Chicago Board of Trade are based on NYSE levels, with the exception that only the 10% threshold is in effect outside of regular NYSE trading hours, and is relative to the previous daily settlement price.
Program trading curbs
The NYSE also implements a curb on program trading whenever the NYSE Composite Index moves 150 points or more from its previous close, and remains in place for the rest of the trading day or until the gain or loss decreases to 70 or fewer points. This curb permits program sales to be executed only on upticks and program buys on downticks. A program trade is defined by the NYSE as a basket of stocks from the S&P 500 where there are at least 15 stocks or where the value of the basket is at least $1 million. Such trades are generally computer automated. Since over 50% of all trades on the NYSE are program trades, this curb limits volatility by mitigating the ability of automated trades to drive stock prices down via positive feedback.
This curb is fairly common, and financial television networks such as CNBC often refer to it with the term "curbs in".
See also
External links
- Circuit Breakers and Trading Collars at the New York Stock Exchange
- Dow Contracts Price Limits and Trading Halts at the Chicago Board of Trade
- Program trading curbs