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Preparing for market disruption: circuit breakers and discretionary trading halts

Journal of Investment Compliance

ISSN: 1528-5812

Article publication date: 1 July 2021

Issue publication date: 30 August 2021

384

Abstract

Purpose

This article provides a resource for traders and other market participants by providing an overview of certain automatic circuit breaker mechanisms and discretionary powers that the U.S. Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA) and the U.S. president, as applicable, can exercise to pause or stop the trading of individual securities or trading activities across exchanges during extreme market volatility, each of which can cause interruptions to trading activity.

Design/methodology/approach

This article surveys automatic and discretionary mechanisms to halt trading activity under extreme market conditions. In particular, the article examines automatic cross-market circuit breakers, limit up-limit down pauses, the alternative uptick rule, as well as discretionary authority to stop short selling of particular securities and to stop trading across exchanges.

Findings

The article concludes that market participants must be cognizant not only of automatic cross-market circuit breakers, but also several other forms of potential market disruptions that may occur due to increased market volatility during the COVID-19 pandemic and beyond.

Originality/value

By exploring various mechanisms that respond to market disruption, this article provides a valuable resource for traders and other market participants looking to identify and respond to potential interruptions to their trading activity.

Keywords

Citation

Morton, J., Sacks, R., Jordan, J.D., Blau, S., Kelly, P.S., Pugliese, T., Lewis, A. and Maddox, C.H. (2021), "Preparing for market disruption: circuit breakers and discretionary trading halts", Journal of Investment Compliance, Vol. 22 No. 3, pp. 217-221. https://doi.org/10.1108/JOIC-08-2020-0021

Publisher

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Emerald Publishing Limited

Copyright © 2020, Shearman & Sterling LLP.

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