A market-wide trading halt is like a timeout. It gives everybody a chance to catch their breath and may help slow the stampede of a selloff. Halts are issued by US equities, options, and futures exchanges.
There are three circuit breakers that can trigger market-wide halts in the US:
- Level 1: The S&P 500 drops 7% from its closing price the previous day, triggering a 15-minute trading halt.
- Level 2: The S&P 500 drops 13% from its closing price the previous day, triggering another 15-minute trading halt.
- Level 3: The S&P 500 drops 20% from its closing price the previous day, and trading is suspended for the remainder of the day.
It’s worth noting, Level 1 and Level 2 halts may only happen once per trading day. That means, if the S&P 500 slides by 7% (resulting in a 15-minute timeout), trading would only stop again if the decline reaches 13% or more. Likewise, if the S&P 500 drops by 13% (again, resulting in a 15-minute suspension), trading would only cease if the downturn reaches 20%.
Please keep in mind, Level 1 and Level 2 circuit breakers can only take effect before 3:25pm ET. At 3:25pm ET and beyond, only a Level 3 halt—a 20% decline in the S&P 500—would cause trading to stop for the day.
Regular US stock market trading hours are 9:30am – 4:00pm ET.