dow futures reach limit down, page-13

Ahead of the Bell: Trading "Circuit Breakers"
Circuit breakers, designed to protect market, may halt stocks in the event of a plunge
October 24, 2008: 07:59 AM EST


NEW YORK (Associated Press) - With futures trading indicating a sharp drop in the stock market once the opening bell rings Friday, the market could flirt with the New York Stock Exchange's "circuit breakers," meaning stocks fall so far the market shuts down.

On Friday, ahead of the market's open, Dow Jones industrial average futures triggered a pre-market circuit breaker. Futures fell the maximum allowed limit of 550, or 6.27 percent, to 8,224. That triggered circuit breakers that automatically freeze selling until the market's 9:30 a.m. EDT open. However, traders can still buy stocks and send the market higher.

After stock market crashes in the late 1980s, the Big Board implemented circuit breakers to force traders to take a break from frenzied selling. The triggers were updated in 1998. In 1997, the market was shut down under the previous circuit-breaker triggers.

If the Dow Jones industrial average falls 1,100 points _ equivalent to about 10 percent at the beginning of the quarter _ before 2 p.m., the market will shut down for an hour. If the threshold is breached between 2 p.m. and 2:30 p.m., the halt will last 30 minutes. Trading will continue to take place if stocks plummet 1,100 points after 2:30 p.m.

If the index falls 2,200 points _ which at the beginning of this quarter was about 20 percent _ before 1 p.m., the market will close for two hours. If the decline takes place between 1 p.m. and 2 p.m., there will be a one-hour pause. The market will close for the day if stocks sink 2,200 points after 2 p.m.

In the event of a 3,350-point decline, the market would close for the day, regardless of the time.

The thresholds are computed at the beginning of each quarter to establish a specific point value for the quarter. The 1,100-point drop represents a 10 percent decline; the 2,200 level, a 20 percent drop, and the 3,350 level is a 30 percent drop.