Circuit Breakers and Other Market Safeguards

34 Pages Posted: 8 Sep 2023

See all articles by Stefano Alderighi

Stefano Alderighi

Financial Reporting Council - UKEB

Pedro Gurrola-Perez

World Federation of Exchanges

Kaitao Lin

World Federation of Exchanges

Bill Speth

World Federation of Exchanges

Date Written: March 15, 2021

Abstract

Exchanges employ various methods, including circuit breakers, trading halts, and price limits, to maintain fair and orderly trading and market integrity. The COVID-19-induced market volatility in March 2020 reignited interest in circuit breakers, prompting the World Federation of Exchanges (WFE) to conduct a research project to better understand their effectiveness and design. This paper analyzes a survey of the WFE members, revealing that circuit breakers, along with price limits, are commonly used safeguards, with 86% of surveyed exchanges employing them, although variations exist in design and calibration. We find that circuit breakers are more prevalent in cash markets (84%) compared to derivatives markets (67%). While 67% of respondents confirm circuit breaker triggers during March 2020, only 30% are considering calibration adjustments, and coordination across venues or jurisdictions is not a priority. Participants deem the correct calibration of circuit breakers as the most pertinent practical concern in market safeguards, followed by assessing their effectiveness.

Keywords: Circuit breakers, volatility control mechanisms, price limits, survey, exchange

JEL Classification: G10

Suggested Citation

Alderighi, Stefano and Gurrola Perez, Pedro and Lin, Kaitao and Speth, Bill, Circuit Breakers and Other Market Safeguards (March 15, 2021). Available at SSRN: https://ssrn.com/abstract=4562240 or http://dx.doi.org/10.2139/ssrn.4562240

Stefano Alderighi

Financial Reporting Council - UKEB ( email )

125 London Wall
Financial Reporting Council
London, L EC2Y 5AS
United Kingdom

Pedro Gurrola Perez

World Federation of Exchanges ( email )

125 Old Broad Street
London, EC2N 1AR
United Kingdom
EC2N 1AR (Fax)

HOME PAGE: http://www.world-exchanges.org

Kaitao Lin (Contact Author)

World Federation of Exchanges ( email )

125 Old Broad Street
London, EC2N 1AR
United Kingdom

Bill Speth

World Federation of Exchanges ( email )

125 Old Broad Street
London, EC2N 1AR
United Kingdom

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