Forefront Communications

Wall Street Journal: Traders Question Value of Stock-Market Circuit Breakers

Alexandra Hamer

Alexandra Hamer

Decades of little-noticed efforts to build guardrails for wild market moves have gotten a rare workout in recent days as circuit breakers have repeatedly halted trading in all U.S. stocks, most recently on Monday morning.

Have they been effective? The jury is still out.

On March 9, on Thursday and again on Monday, a 7% plunge in the S&P 500 in the opening minutes of trading forced 15-minute, marketwide halts—the first time since 1997 that the mechanism has been activated. Neither of last week’s circuit breakers prevented stocks from tumbling further: On March 9 the S&P closed 7.6% lower, while on Thursday it fell 9.5% in its steepest d

rop since “Black Monday” in 1987. And on Monday the index was down 9.6% in midmorning trading, shortly after the halt was lifted.

It’s impossible to know, of course, how markets would have acted if the halts hadn’t happened. But some traders complained they did little good.

“It’s just spooking the market,” said Dennis Dick, a trader at Bright Trading LLC. “I think they’re more disruptive than helpful.”

The coronavirus-fueled selloff of recent weeks put an extraordinary load on the infrastructure of U.S. stock markets. Trading volumes hit 19.4 billion shares on Feb. 28, their second-highest level ever, and were just shy of 19 billion on Thursday, according to Rosenblatt Securities.

Last week’s volatility also triggered a frenzy of single-stock trading halts, which temporarily pause trading in a company’s shares if they abruptly experience a big price move. For most large stocks, that means a 5% increase or decrease within a five-minute period.

There were 781 single-stock halts Thursday, more than the total amount for all of January and February combined, according to MayStreet, a financial-data vendor. Among the stocks temporarily halted that day were Occidental Petroleum Corp., Royal Caribbean Cruises Ltd. and Sirius XM Holdings Inc.

Monday’s circuit breaker also caused thousands of stock and options trades to be “busted,” an exchange official said. Busted or broken trades occur when exchanges unwind transactions that have already been executed. Circuit-breakers tend to cause bursts of them, because exchanges will execute trades just as trading is halted across all markets.

“It aggravates traders who get busted,” said Stino Milito, co-chief operating officer of Dash Financial Technologies, an options brokerage. Dash saw busted trades on each of the recent days when circuit breakers were tripped, he said.

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