Headline Circuit Breaker for Q2

Certain websites and blogs I have read seem to have taken over the role of informing the public about current events from the traditional media sources we used to rely on. As we have seen in the last decade it is now independent sites in almost every subject known to the common man that are the most informative. One of the sites I am referring to published a tiny piece about the NYSE's circuit breakers that stop the market from potentially collapsing by shutting down or delaying trading upon a 10, 20 or 30% drop.


The NYSE has had circuit breakers in place since the late 1990's and has yet to update the new info for the third quarter of this year. After trading closes in New York, I go browse a large list sites to see how the noise (chatter) has changed after the close. Today, the first thing I see when I head over to ZeroHedge.com is:

"Marketwide Circuit Breakers Active For Another 2 Hours

Don't fret: the NYSE has it all under control. If the market plunge continues the market will simply close. Better get it in the next 2 hours though."

Though I really enjoy the work done by Tyler Durden and others on the site, at times I find the, on the verge of a crash at all times style a little tiring. The equity market tends to follow the money supply quite closely and though markets may often overreact, the general correlation is strongly present. While the deflationary crash is ahead down the road, what lies in between is the creation of new debt worldwide that will be paid, for the most part, with new debt until it becomes obvious many sovereign nations will not be able to devalue their currency enough to pay back the bill due for the errors made during the debt spiral.

The near term equity crash I foresee looms in Europe, certainly pain will be felt elsewhere but I doubt the NYSE or NYSE Euronext shuts down this week on news that Greece defaulted or was bailed out a second time.


From the NYSE:

Rule 80B Effective April 15, 1998 the SEC approved amendments to Rule 80B (Trading Halts Due to Extraordinary Market Volatility) which revised the halt provisions and the circuit-breaker levels. The trigger levels for a market-wide trading halt were set at 10%, 20% and 30% of the DJIA, calculated at the beginning of each calendar quarter, using the average closing value of the DJIA for the prior month, thereby establishing specific point values for the quarter. Each trigger value is rounded to the nearest 50 points.

The halt for a 10% decline would be one hour if it occurred before 2 p.m., and for 30 minutes if it occurred between 2 and 2:30, but would not halt trading at all after 2:30. The halt for a 20% decline would be two hours if it occurred before 1 p.m., and between 1 p.m. and 2 p.m. for one hour, and close the market for the rest of the day after 2 p.m. If the market declined by 30%, at any time, trading would be halted for the remainder of the day.

Under the previous Rule 80B trigger points (in effect since October 19, 1988) for a market-wide trading halt, a decline of 350 points in the DJIA would halt trading for 30 minutes and a drop of 550 points one hour. These trigger points were hit only once on October 27, 1997, when the DJIA was down 350 at 2:35 p.m. and 550 at 3:30, shutting the market for the remainder of the day.