What Is A Circuit Breaker?

During times of extreme pricing volatility or market panic, the term "circuit breaker" is frequently used by traders, brokers and the financial media. Amid extraordinary events such as viral outbreaks or terrorist attacks, these devices are designed to prevent full-blown market crashes.

Circuit Breaker Defined

In the physical world, a circuit breaker is a safety mechanism used to cut the flow of electricity through a closed path. When engaged, electrical current is instantaneously disrupted and the delivery of voltage through the circuit terminates. It's at this point repairs can be safely completed, free from risk of electrocution.[1] Circuit breakers accompany the vast majority of electrical installations, including those found in buildings, power grids and machinery.

As they pertain to the financial markets, circuit breakers are fail-safe mechanisms that immediately disrupt public trading. Upon being activated, traders and investors are not able to open new positions or close out existing positions; all activity is abruptly "curbed" in an attempt to restore efficient and orderly markets.

The ultimate objectives of a circuit breaker are multifold:

Preserve Market Efficiency

Market crashes are driven by the dominance of sellers over buyers. A halt in trade promotes buy-side liquidity as market participants are afforded time to evaluate asset prices at a stand-still, not as they fall.

Prevent Market Crashes

Before the coronavirus (COVID-19) panic of 2020, the two largest single-day losses for U.S. stocks occurred in 1929 and 1987. Known as Black Monday, the crash of 1929 sent the stock market lower by 12.8% on the fourth day of tumult. In October 1987, Black Monday II occurred and brought a staggering single-day loss of 23% for the aggregate American stock market. This event was the catalyst for the development and institution of circuit breakers in the marketplace.[2]

Types Of Circuit Breakers

Although typically utilised in the financial markets of developed nations, circuit breaker procedures are not universal. Policies vary greatly according to locale, market and product. The primary differences between each type are in how trade is conducted once a defined volatility threshold is hit[3]:

  • Trading Halts: A trading halt is a complete stop to all buying and selling on the open market.
  • Volatility Interruption: Upon market prices leaving a defined band or "tunnel," open trade is suspended for a short period. During this time, an unscheduled auction is conducted in an attempt to stabilise asset prices.[4]
  • Product-Specific Trading Halt: If an individual instrument violates a predetermined pricing extreme, trade is curbed for a designated period of time.
  • Order Rejection Mechanism: In the event pricing volatility violates defined parameters, buy/sell orders sent to the exchange are not accepted.

An example of well-known circuit breakers include those put into place by the United States Securities and Exchange Commission (SEC) in 2012. The SEC's guidelines govern trade on U.S. markets, specifically the New York Stock Exchange (NYSE). As the world's largest equities exchange (an approximate market capitalisation of US$13.4 trillion), the NYSE halts the action at several predetermined levels.

Known as the Market Wide Circuit Breaker (MWCB), all trade ceases at the following thresholds:
* Level 1: The Level 1 MWCB is triggered when the Standard and Poor's 500 Index (S&P 500) falls by 7% from the prior day's closing price. Trade is halted for 15 minutes before resuming.
* Level 2: Upon the S&P 500 extending losses to 13%, the Level 2 MWCB is activated. Once again, trade is curbed for 15 minutes.
* Level 3: The Level 3 MWCB rests 20% below the previous day's settlement of the S&P 500. If hit, the session is suspended until the following business day.

For the NYSE's circuit breakers, Levels 1 and 2 may be triggered between 9:30 AM EST and 3:25 PM EST; a Level 3 breach can be executed at any time.

In addition to the MWCB, the SEC also outlines rules for the trade of individual stocks. The SEC establishes price bands for each corporate share at 5%, 10%, 20% or 75% of market price. Should volatility take price outside of these levels within a five-minute period, trade of said stock is halted for the subsequent five minutes.


In March 2020, trade on the world's markets was halted repeatedly as a result of the COVID-19 pandemic. For the NYSE, 9 March 2020 marked the first time since 1997 that trade was curbed ahead of a session's closing bell.

The early 2020 coronavirus outbreak brought unprecedented levels of volatility to the world's markets. Mass quarantines, central bank actions and emergency government stimulus programs forced the rapid repricing of most asset classes. Subsequently, circuit breakers played instrumental roles in preserving the efficiency of price discovery.



Retrieved 09 Sep 2019 https://corporatefinanceinstitute.com/resources/knowledge/finance/what-is-return-on-equity-roe/


Retrieved 09 Sep 2019 https://fred.stlouisfed.org/series/USROE


Retrieved 09 Sep 2019 https://marketrealist.com/2016/11/look-us-utilities-return-equity/


Retrieved 09 Sep 2019 https://csimarket.com/Industry/Industry_Profitability.php


Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, Friedberg Direct, FXCM or its affiliates takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of Friedberg Direct and FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the Friedberg Direct's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.**

Order Execution Only

Order Execution Only

Regulatory Documents:
IIROC Brochure: How Can I Get My Money Back, How IIROC Protects Investors, IIROC Complaints Brochure, CIPF Brochure, CIPF Coverage Policy, IIROC Order Execution Only Bulletin, Conflict Disclosure Statement, Covid-19 and Cyber Security - Tips for Investors

The relationship between Friedberg Direct and FXCM was formed with the purpose to allow Canadian residents access to FXCM's suite of products, while maintaining their accounts with a regulated Canadian firm. All accounts are opened by and held with Friedberg Direct, a division of Friedberg Mercantile Group Ltd., a member of the Investment Industry Regulatory Organization of Canada (IIROC). Friedberg customer accounts are protected by the Canadian Investor Protection Fund within specified limits. A brochure describing the nature and limits of coverage is available upon request or at www.cipf.ca.

${getInstrumentData.name} / ${getInstrumentData.ticker} /

Exchange: ${getInstrumentData.exchange}

${getInstrumentData.bid} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)