Quick Answer
Market-wide circuit breakers halt equity trading on S&P 500 declines of 7%, 13%, or 20% from the prior close: 15-minute halts at Levels 1 and 2 before 3:25 PM ET, and a full-day halt at Level 3. Limit Up-Limit Down (LULD) is a separate, individual-stock mechanism pausing trading when price exits its band.
When the entire market drops sharply, circuit breakers pause trading to prevent panic selling and give investors time to make informed decisions. There are two systems: market-wide halts (based on the S&P 500) and individual stock circuit breakers (Limit Up-Limit Down).
How Do Market-Wide Circuit Breakers (S&P 500) Work?
Circuit breaker levels are calculated daily based on the prior day's closing price of the S&P 500 Index.
| Level | S&P 500 Decline | Before 3:25 PM ET | At or After 3:25 PM ET |
|---|---|---|---|
| Level 1 | 7% | Trading halted for 15 minutes | No halt |
| Level 2 | 13% | Trading halted for 15 minutes | No halt |
| Level 3 | 20% | Trading halted for the remainder of the day | Trading halted for the remainder of the day |
What Other Rules Apply to Market-Wide Circuit Breakers?
- A Level 1 or Level 2 halt can only be triggered once per day at each level
- A Level 3 halt closes the market for the day regardless of the time
- These are market-wide halts: all equity trading stops across all exchanges and over-the-counter (OTC) venues
- FINRA's market-wide-volatility halt rule requires FINRA to halt all OTC trading in National Market System (NMS) stocks when exchanges initiate market-wide halts
- Circuit breakers only trigger on declines (not rallies)
Think of it this way: Circuit breakers work like a fire alarm in a building. When the alarm goes off, everyone stops what they are doing and regroups. The bigger the fire (7% to 13% to 20%), the longer the pause, and at 20% the building shuts down for the day.
Exam Tip: Gotchas
- 7%, 13%, 20%: these three S&P 500 decline thresholds are frequently tested
- Level 1 and Level 2 halts last 15 minutes; Level 3 closes the market for the day.
- After 3:25 PM ET, Level 1 and Level 2 declines do NOT trigger halts. Only a Level 3 (20%) decline halts trading after 3:25 PM.
How Does Limit Up-Limit Down (LULD) Work?
While market-wide circuit breakers address broad market crashes, LULD prevents extreme price swings in individual NMS stocks.
What Triggers a LULD Pause?
- Price bands are set as a percentage above and below the stock's average reference price over the preceding 5-minute period
- If a stock's price hits the upper or lower band, it enters a Limit State
- If the price does not recover within 15 seconds, trading is paused for 5 minutes
- LULD applies during regular trading hours (9:30 AM to 4:00 PM ET)
What Are the LULD Tiers and Price Bands?
| Tier | Securities Included | Price Band |
|---|---|---|
| Tier 1 | S&P 500, Russell 1000, select exchange-traded products (ETPs) | 5% for stocks >= $3; 20% for stocks $0.75-$2.99; lesser of $0.15 or 75% for stocks < $0.75 (doubled in last 25 min of trading) |
| Tier 2 | All other NMS securities (excluding rights/warrants) | 10% for stocks >= $3; 20% for stocks $0.75-$2.99; lesser of $0.15 or 75% for stocks < $0.75 |
- Price bands are doubled during the last 25 minutes of the trading day for all Tier 1 stocks and Tier 2 stocks below $3.00
Exam Tip: Gotchas
- LULD's 15-second recovery window is different from the 15-minute market-wide halt. If a stock hits a price band, it gets 15 seconds to bounce back before a 5-minute trading pause kicks in.
- LULD price bands double in the last 25 minutes of trading (for Tier 1 and low-priced Tier 2 stocks), giving stocks more room to move near the close.
How Do Market-Wide Circuit Breakers Compare to LULD?
| Feature | Market-Wide Circuit Breakers | LULD |
|---|---|---|
| Scope | All equities across all markets | Individual NMS stocks |
| Trigger | S&P 500 decline | Individual stock price move |
| Direction | Declines only | Both up and down |
| Thresholds | 7%, 13%, 20% | 5%, 10%, 20%, or $0.15 (by tier/price) |
| Halt duration | 15 min or rest of day | 5 minutes |
Exam Tip: Gotchas
- Market-wide circuit breakers only halt on DECLINES; LULD triggers on both up and down moves. This directional difference is a common exam question.
- Each Level 1 and Level 2 halt can only trigger once per day. If the market drops 7%, recovers, and drops 7% again, there is no second Level 1 halt.
What Should You Check on Exam Day?
- Base circuit breaker levels on the prior day's S&P 500 close, and remember Level 1/Level 2 halts do not trigger at or after 3:25 PM ET.
- Confirm a Level 3 (20%) decline halts trading for the rest of the day regardless of when it happens.
- Distinguish market-wide breakers (decline-only, S&P 500-based) from LULD (both directions, individual stock).
- Match a LULD Limit State to its timing: 15 seconds to recover, then a 5-minute pause if it does not.