Since their inception, circuit breakers have been modified to prevent both speculative gains and dramatic losses within a small time frame.
On the New York Stock Exchange (NYSE), one type of trading curb is referred to as a "circuit breaker".
These limits were put in place beginning in January 1988 (weeks after Black Monday occurred in 1987) in order to reduce market volatility and massive panic sell-offs, giving traders time to reconsider their transactions.
[citation needed] The most recently updated amendment of rule 80B went into effect on April 8, 2013, and has three tiers of thresholds that have different protocols for halting trading and closing the markets.
Price limits for equity index and foreign exchange futures are posted on the CME website at the close of each trading session.
The Brady Commission's report had four main findings, one of which stated that whatever regulatory agency was chosen to monitor equity markets should be responsible for designing and implementing price limit systems known as circuit breakers.
The original intent of circuit breakers was not to prevent dramatic but fair price swings, rather to allow time for sufficient communication between traders and specialists.
[citation needed] Then SEC Chairman Arthur Levitt Jr. believes this use was unnecessary,[9] and that market price levels had increased so much since circuit breakers were implemented that the point based system triggered a halt for a decline that was not considered a crisis.
[10] Some, like Robert R. Glauber, suggested in the aftermath of the circuit breaker tripping that trigger points be increased, and automatically reset by formula on an annual basis.
[9] On March 9, 2020, the Dow Jones fell by 7.79% (2,013 points) on fears of the COVID-19 coronavirus and falling oil prices, and the S&P 500 triggered a market shutdown for 15 minutes just moments after opening.
Under the mechanism stock trading may be halted for 15 minutes if the (PSE) falls at least 10% based on the previous day's closing index value.
This argument is becoming less relevant over time as the use of floor traders diminishes and the majority of trading is done by computer generated algorithms.
[19] When trading halts for any amount of time, the flow of information is reduced due to a lack of market activity, adversely causing larger than normal bid-ask spreads that slows down the price discovery process.