قاطع الدائرة هو جهاز يستخدم لقطع التيار الكهربائي عن دائرة معينة. يعمل على حماية الدوائر الكهربائية من التحميل الزائد أو القصير، مما يسهم في حماية الأجهزة الكهربائية والمكونات الأخرى من التلف. يتم استخدام قواطع الدائرة في المنازل والمباني التجارية والصناعية لضمان سلامة الأنظمة الكهربائية.

The circuit breaker is a regulatory tool that halts trading in the markets when declines reach certain levels over a 24-hour period. Circuit breakers were adopted by market regulators in 1988 in response to the stock market crash of 1987, in an attempt to create a cooling-off period during times of severe market volatility. They were recently activated in March 2020 due to the coronavirus pandemic, and these regulatory features help prevent panic selling and allow investors time to understand what is happening in the market.

How does a circuit breaker work?

Circuit breakers aim to temporarily halt trading during periods of extreme market volatility. They create a cooling-off period and help prevent a complete stock market collapse. There are three different levels of circuit breakers, which are recalculated daily:

– Level 1 is activated when the S&P 500 index drops by 7% before 3:25 PM on a trading day. If Level 1 is activated, trading pauses for 15 minutes.

– Level 2 is activated when the S&P 500 index drops by 13% before 3:25 PM on a trading day. If Level 2 is activated, trading pauses for 15 minutes.

– Level 3 is activated when the S&P 500 index drops by 20% at any time during the trading day. If Level 3 is activated, trading halts for the rest of the day.

Note: Each level of circuit breakers can be triggered only once per day. For example, if the S&P 500 drops by 7%, triggering Level 1 and halting trading, the market will not be halted again unless Level 2 is activated.

When are circuit breakers used?

Regulators adopted circuit breakers in response to the stock market crash in October 1987, known as Black Monday. Although this market safety net has been in place for over three decades, it has rarely been used.

The first use of market-wide circuit breakers occurred on October 27, 1997, about 10 years after the procedure was adopted. Over a two-day period, the market dropped by 554.26 points. By mid-afternoon on October 27, the Dow Jones Industrial Average had fallen by 350 points, leading to a 30-minute trading halt. The market continued to decline significantly after the halt, leading to an early market close.

The only other instances of circuit breakers being activated occurred in March 2020. Due to market volatility from the coronavirus outbreak, circuit breakers were activated four times in nine days. While all four instances led to a Level 1 market decline, two of the four are now considered part of the largest one-day percentage drops in Dow Jones Industrial Average history.

Advantages and Disadvantages of Circuit Breakers

Advantages

– Helps prevent panic selling.

– Gives analysts time to understand what is happening.

– Can be set for individual stocks.

Disadvantages

– May lead traders to sell faster.

– Delays inevitable market actions.

– May not be updated regularly.

Circuit breakers were adopted after the stock market crash of 1987, known as Black Monday. They have been activated five times since then – four of those times were in March 2020. Circuit breakers aim to prevent panic selling and give investors and analysts the opportunity, with cooler heads, to figure out what is happening in the market. However, circuit breakers have rarely been tested, leading some critics to argue that they delay an inevitable outcome and may create, at worst, more panic, causing investors to sell more quickly.

Sources:
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– U.S. Securities and Exchange Commission. “Trading Analysis of October 27 and 28, 1997.”
– Vanguard. “Market Volatility Regulations.”
– Nasdaq. “Market-Wide Circuit Breakers.”
– Congressional Research Service. “Capital Markets Volatility and COVID-19: Background and Policy Responses,” Page 8.
– S&P Global. “Sizzlers and Fizzlers.”

Source: https://www.thebalancemoney.com/what-is-a-circuit-breaker-5091671