S&P 500 futures are frozen after tanking 5%. Here's what happens when 'circuit breakers' kick in - CNBC

Traders work the floor of the New York Stock Exchange (NYSE) on March 5, 2020 in New York City. Coronavirus fears have whipsawed markets recently, with the Dow Jones Industrial Average ending today down more than 950 points, or nearly 3.6 percent. (Photo by David Dee Delgado/Getty Images)

David Dee Delgado | Getty Images

With U.S. stock futures set to plunge at the open, investors will be watching for key market circuit breakers known as 'limit down" which have the ability to limit or halt the market altogether.

That means futures can trade higher but now lower.  S&P 500 futures sank 5%, halting trading below limit down and preventing futures from falling any further.

What is 'limit down'?

According to the New York Stock Exchange, a market trading halt may occur at "three circuit breaker thresholds" on the S&P 500 due to large declines and volatility. The exchange classifies this at three levels based on the preceding session's close in the S&P 500.

The rules, which apply to regular trading hours only, are as follows:

• Level 1: If the S&P 500 drops 7%, trading will pause for 15 minutes. (This would occur today if the S&P falls 208 points).
• Level 2: If the S&P 500 declines 13%, trading will again pause for 15 minutes if the drop occurs on or before 3:25 p.m. ET. There will be no halt the drop happens after that. (This would occur today if the S&P falls 386 points).
• Level 3: If the S&P 500 falls 20%, trading would halt for the remainder of the day. (This would occur if the S&P falls 594 points).

These circuit breakers have never been triggered in their current form during regular trading hours. The prior circuit breaker system was revamped after it failed to prevent the May 2010 flash crash.  This current set of breakers were put into effect in February 2013.

—CNBC's Peter Schacknow contributed to this report.

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2020-03-09 10:37:46Z
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