Circuit breaker

A pause applied by an exchange or a regulator rather than by any participant. Thresholds are set in advance and published, they are usually stated as a percentage move from a reference level, and they escalate: a first band pauses trading briefly, a wider band pauses it for longer, and the widest closes the venue for the remainder of the session. Some venues also apply the mechanism to a single instrument rather than to the whole market, halting it while an imbalance is resolved.

The stated purpose is to interrupt a feedback loop rather than to set a price. A halt gives participants time to establish what has happened and gives an auction a chance to gather interest on both sides before continuous trading resumes. Whether it achieves that is genuinely disputed among market economists, and the counter argument is specific: a halt can pull orders toward the threshold as participants race to deal before the pause, which is the opposite of what the rule intends.

For an instrument written on a halted underlying the consequence is direct. No reference price is being produced, so quoting is suspended or widens sharply, resting instructions cannot execute against a market that is not trading, and the position cannot be adjusted until the halt lifts. A price gap across the pause is common, and a stop instruction placed inside it deals at the first available price on resumption rather than at the level written.