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Under the rules approved in 2012, which falls in the S&P 500 Index trigger the three levels of market-wide circuit breaker?
AFalls of 2, 4 and 6 percent from the prior close
BFalls of 5, 10 and 15 percent from the prior close
CFalls of 10, 20 and 30 percent from the prior close
DFalls of 7, 13 and 20 percent from the prior close
Answer & Solution
Correct answer: D. Falls of 7, 13 and 20 percent from the prior close
1. Circuit breakers were introduced after Black Monday, 19 October 1987, when the Dow Jones Industrial Average plunged 508 points and trading overloaded the exchange computers.
2. Under certain conditions they stop trading for a 15-minute cooling-off period to limit the amount the market can drop in one day.
3. Revised rules approved by the SEC in 2012 set three levels.
4. Level 1 triggers on a fall of 7 percent from the prior day's closing numbers.
5. Level 2 triggers at 13 percent.
6. Level 3 triggers at 20 percent.
7. The levels are deliberately wide, so ordinary volatility does not halt trading and only a genuine collapse does.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 16 "Understanding Financial Management and Securities Markets", section 16.7 Buying and Selling at Securities Exchanges_
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