Why Facebook's 12% Collapse Didn't Trigger Circuit Breakers

As Facebook plunged more than 12 per cent early today, a number of people asked why Facebook never hit circuit breakers designed to halt a collapse.

Here’s the reason: Facebook shares stopped declining at $35 a share, or a drop of 7.8 per cent, at 9:34 a.m. and held there for six minutes.

The SEC requires all exchanges halt single-security trading if shares decline more than 10 per cent in a five minute period, so long as the active stock is priced above $1. If a halt is triggered, shares would be paused for a five minute window before resuming again. 

For Facebook, that would mean a fall to $34.20 by 9:35 a.m. for the NASDAQ to hold trading. 

The SEC has different requirements for exchanges like the Dow Jones Industrial Average, S&P 500 and Nasdaq. 

At the start of each quarter, each market sets trading limits at 10, 20 and 30 per cent declines. If at any point during a trading day markets were to pass through those levels, trading would be halted for at least half an hour (unless a decline between 10 and 20 per cent occurs after 2:30 p.m.).

Below, the limits for the Dow.

Chart

Photo: NYSE

 

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