While stocks are off their 52-week lows today, the weight of additional tariffs on China -- and harsher retaliatory countermeasures -- has volatility at a fever pitch. Earlier today, the Cboe Volatility Index (VIX) toppled 60 on an intraday level and is heading for its highest close since April 2020.
Whether you're a passive or active trader, its important to remember when stock prices and stock futures fall rapidly in a single session, exchanges implement halts in trading to allow a moment for cooler heads to prevail and avoid market crashes we’ve seen in the past on Wall Street.
The last circuit breaker occurred during the height of the Covid pandemic in March 2020, but here's what you need to know in case the next few months play out the way the last week has.
Level 3: The SPX plunges 20% intraday. At this point, the exchange suspends trading for the remainder of the day.
Trigger points are recalculated daily based on the previous S&P 500 closing price. You can find all the details on the market-wide circuit breaker approval order here.
Meanwhile, beyond the market-wide circuit breakers in place, there are also single stock circuit breakers. The single stock circuit breakers, or Limit Up-Limit Down (LULD) prevent extreme price swings in individual stocks by pausing trading if prices move outside set "bands" for more than 15 seconds. LULD only applies during regular trading hours (9:30 AM ET - 4:00 PM ET), with wider bands in the last 25 minutes of trading for certain stocks.
The price bands vary (5%, 10%, 20%, etc.) based on the stock's price and type (Tier 1 or Tier 2).
Tier 1: Includes S&P 500, Russell 1000, and select ETFs.
Tier 2: Covers other securities except rights and warrants.
These circuit breaker mechanisms are in place to stabilize the market during unusually high volatility.
Frequently Asked Questions
How are price bands calculated under the Limit Up-Limit Down (LULD) Plan?
The LULD Plan is designed to prevent excessive volatility in individual securities by establishing price bands within which trading can occur. Here's how these price bands are calculated:
Reference Price is calculated as the arithmetic mean of eligible reported transactions over the prior five-minute period.The first Reference Price of the day is either the primary market's opening price or the previous day's closing price if the market opens on a quote. If no eligible trades occur in the preceding five minutes, the previous Reference Price remains in effect. The Reference Price is updated every 30 seconds, provided the new price differs by at least 1% from the current Reference Price.
Percentage Parameters: The price bands are determined by applying specific percentage parameters to the Reference Price. These parameters vary based on the security's tier and price:
- Tier 1 Securities and Tier 2 Securities ≤ $3.00 (9:30 a.m. - 3:35 p.m. ET):
- Previous Closing Price > $3.00: ±5%
- $0.75 ≤ Previous Closing Price ≤ $3.00: ±20%
- Previous Closing Price < $0.75: Lesser of ±$0.15 or ±75%
- Tier 2 Securities > $3.00 (9:30 a.m. - 4:00 p.m. ET):
- Previous Closing Price > $3.00: ±10%
During the last 25 minutes of regular trading hours (3:35 p.m. - 4:00 p.m. ET), these price bands are doubled for all Tier 1 Securities and for Tier 2 Securities priced at or below $3.00.
Calculation of Price Bands:
The Upper and Lower Price Bands are calculated as:
Upper Price Band = Reference Price × (1 + Percentage Parameter)
Lower Price Band = Reference Price × (1 - Percentage Parameter)
These values are then rounded to the nearest penny.
When have market-wide circuit breakers been triggered in U.S. stock market history?
Since the introduction of the market-wide circuit breakers in response to the "Black Monday" stock market crash of 1987, there have been five trading days in which trading activity tripped the circuit breakers:
October 27, 1997: In response to a significant decline in the Dow Jones Industrial Average (DJIA), the first-ever market-wide circuit breaker was activated.
March 9, 2020: Amid escalating concerns over the COVID-19 pandemic and plummeting oil prices, the S&P 500 index fell by 7%, triggering a Level 1 circuit breaker that halted trading for 15 minutes.
March 12, 2020: The market experienced another sharp decline due to the intensifying pandemic, leading to a second Level 1 circuit breaker within the same week.
March 16, 2020: Continuing volatility from the pandemic's economic impact caused a third Level 1 circuit breaker to be triggered.
March 18, 2020: The fourth and most recent activation occurred when the S&P 500 dropped by 7% during intraday trading, leading to another 15-minute halt.
As you'll note, the most recent activation of market-wide circuit breakers occurred in March 2020, at the start of the COVID-19 pandemic. Circuit breakers were triggered on four distinct trading days: March 9, 12, 16, and 18.
When have individual stock circuit breakers been triggered in U.S. stock market history?
Since the implementation of the Limit Up-Limit Down (LULD) plan in 2012, individual stock trading pauses have occurred during periods of significant market volatility. Notably:
March 2020: Amid the COVID-19 pandemic's onset, there was a substantial increase in LULD trading pauses. Over 28% of stocks listed on the NYSE or Nasdaq experienced such pauses in March alone, a significant rise from 1.4% in January 2020.
June 3, 2024: The New York Stock Exchange investigated a technical issue related to LULD bands, resulting in trading halts for stocks like Abbott Laboratories, Berkshire Hathaway, and GameStop.
March 21-23, 2025: Several stocks, including NeuroSense Therapeutics Ltd (NASDAQ:NRSN), Akanda Corp (NASDAQ:AKAN), and JX Luxventure Ltd (NASDAQ:JXG), were halted due to LULD circuit breakers after experiencing rapid price movements.
These instances highlight the LULD mechanism's role in mitigating extreme price volatility in individual securities.