Markets
The Dow Jones industrial average fell 665 points on Friday afternoon — but that didn’t trigger any trading halts. Weird?
No. The trading halts instituted by the U.S. stock exchanges don’t kick in until the broader market gauge, the SP 500, falls at least 7 percent, what’s called level 1.
For the day, the SP index closed down “just” 2.1 percent, at 2,762.
To put the day’s move in a broader context, the point drop in the Dow (which is a basket of 30 large U.S. company stocks versus the 500 or so stocks in the SP) was just 2.5 percent. The last time the Dow closed down 500 or more points was after Britain voted to leave the European Union, June 24, 2016, when it fell 610 points, then a 3.4 percent move.
The Dow’s biggest drop in points in a single day was 777.68 on Sept. 29, 2008, in the midst of the financial crisis. That would be just a 3 percent drop these days. It was a 6.89 percent fall back then.
Still, the Dow has given back one-third of its gains for January. And the groundhog has called for six more weeks of winter.
For the stock market to halt, to allow fearful investors and frenzied traders (and computers) a chance to cool off, the SP would have to have dropped to around 2,624. And that kind of halt would have lasted for 15 minutes.
The NYSE, Nasdaq and other exchanges put these circuit breakers in place after the October 1987 crash and a subsequent one in 1989.
The first level gets triggered if the SP falls 7 percent between the opening of trading hours at 9:30 a.m. in New York and 3:25 p.m. (or 12:25 p.m. on days when the stock market has a scheduled early close).
The next trigger, level 2, kicks in when the index falls 13 percent, another 15-minute halt. To get there on Friday, the SP would have to have fallen to around 2455.
Level 1 and 2 halts can only happen once per trading day. If the SP fell 20 percent (that would be to 2,210 as of Friday), trading would stop for the rest of the day.
That would be a “Black Monday”-sized drop, which happened on Oct. 19, 1987.
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