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Circuit-breaker points represent the thresholds at which trading is halted market wide for single-day declines in the Dow Jones Industrial Average. Circuit-breaker levels are set quarterly as 10, 20 and 30-percent of the DJIA average closing values of the previous month, rounded to the nearest 50 points.
In fourth-quarter 2005, the 10-, 20- and 30-percent decline levels, respectively, in the DJIA will be as follows
Level 1 Halt
A 1,050-point drop in the DJIA before 2 p.m. will halt trading for one hour; for 30 minutes if between 2 p.m. and 2:30 p.m.; and have no effect if at 2:30 p.m. or later unless there is a level 2 halt.
Level 2 Halt
A 2,100-point drop in the DJIA before 1:00 p.m. will halt trading for two hours; for one hour if between 1:00 p.m. and 2:00 p.m.; and for the remainder of the day if at 2:00 p.m. or later.
Level 3 Halt
A 3,150-point drop will halt trading for the remainder of the day regardless of when the decline occurs.
Trading collars, which restrict index-arbitrage trading, will be triggered during fourth-quarter 2005 when the NYSE Composite Index® (NYA) moves 150 points or more above or below its closing value on the previous trading day, and will be removed when the NYA is above or below the prior day’s close by 70 points.
In fourth-quarter 2005, trading collars will be implemented as follows:
- A decline in the NYA of 150 points or more will require all index-arbitrage sell orders of the S&P 500 stocks to be stabilizing, or sell plus[1], for the remainder of the day, unless on the same trading day, the NYA advances 70 points or less below its previous day’s close.
- An advance in the NYA of 150 points or more will require all index-arbitrage buy orders of the S&P 500 stocks to be stabilizing, or buy minus[2], for the remainder of the day, unless the NYA retreats to 70 points or less above its previous day’s close.
- The restrictions will be re-imposed each time the NYA advances or declines 150 points from its previous day’s close.
Background:
Circuit-breakers are calculated quarterly. The percentage levels were first implemented in April 1998 and are adjusted on the first trading day of each quarter. In 2005, those dates are Jan. 3, April 1, July 1 and Oct. 3.
Trading collars are also calculated quarterly, as 2 percent of the average closing value of the NYA for the last month of the previous quarter, rounded down to the nearest 10 points. They are removed when the NYA advances or retreats from the prior day’s close to less than or equal to half of the 2 percent value, rounded down to the nearest 10 points.
On Sept. 27, 2005, the SEC approved the NYA for use as a benchmark for trading collars. Please click on the following link for more information: http://www.nyse.com/press/1127817520991.html .
