Circuit Breakers for Stock Market Price Drops

B

The circuit breaker that is applied when stock prices in the market are dropping is known as the "Floor."

A circuit breaker is a regulatory mechanism implemented by stock exchanges to ensure orderly trading and prevent excessive market volatility. It is designed to temporarily halt trading activities in the event of significant declines in stock prices within a specified period.

In this context, the term "floor" refers to the lower limit or threshold beyond which the circuit breaker is triggered. When the stock prices reach or drop below this predetermined floor level, the circuit breaker is activated, and trading is temporarily halted.

The purpose of implementing a circuit breaker is to provide a cooling-off period during times of extreme market stress, allowing investors to reevaluate their positions and potentially prevent panic selling or further market deterioration. By pausing trading activities, the circuit breaker aims to stabilize the market and prevent abrupt price declines.

Once the circuit breaker is triggered, different stock exchanges may have specific rules regarding the duration of the halt and the subsequent resumption of trading. These rules may depend on the severity of the price decline and the specific market regulations in place.

It's important to note that the circuit breaker mechanism and its specific parameters can vary across different stock exchanges and jurisdictions. Therefore, it is advisable to consult the rules and regulations of the relevant stock exchange or regulatory authority for precise details on how circuit breakers are implemented in a particular market.