Previously, trading curbs and halts were steps that the equity markets used to minimize volatile trading during a market session.
As of November 2, 2007, the rule that created trading curbs was rescinded.
Trading curbs placed limitations on index-arbitrage trading. On a day when the Dow Jones Industrial Average (DJIA) dropped a certain number of points, any index-arbitrage market sell order must be filled at a price higher than the previous sale. The goal of trading curbs was to slow a steep decline by limiting index-arbitrage activity. Conversely, when the DJIA moved up that same number of points or more, any index-arbitrage market buy order must be filled at a price lower than the previous sale.
These curbs did not affect trades placed by the average investor.
Trading halts are still in use.
Trading halts are implemented when the DJIA drops 10%, 20% or 30%. A trading halt ends all trading for a limited time period. Trigger levels for first quarter 2011 are: 1,150 points, 2,300 points and 3,450 points.
If the DJIA drops 1,150 points during any one day before 2 p.m. EST, trading on the New York Stock Exchange (NYSE) will be halted for one hour. If the drop occurs between 2 p.m. and 2:30 p.m., the halt will last for only 30 minutes. If the drop occurs after 2:30 p.m., trading will not be halted.
If the DJIA drops 2,300 points before 1 p.m., trading will be halted for two hours. If the drop occurs between 1 p.m. and 2 p.m., the halt will be for only one hour. If the drop occurs after 2 p.m., trading will be halted for the remainder of the day.
If the DJIA drops 3,450 points at any point during the day, trading is halted for the remainder of the day.
In each case, the halt is instituted to allow investors to step back, evaluate what news is moving the market, and then make their decisions.
For more information, please contact Henssler Financial at 770-429-9166 or [email protected].