Circuit breakers were introduced to pause markets during extreme declines after the 1987 stock-market crash.
Black Monday exposed how quickly automated and human selling could overwhelm exchanges. On October 19, 1987, the Dow Jones Industrial Average lost 22.6%, and trading systems struggled with the volume of orders. A presidential commission led by Nicholas Brady investigated the crash and recommended coordinated safeguards.
U.S. markets subsequently adopted circuit breakers, also called trading curbs. These rules temporarily halt trading when broad indexes fall by specified amounts. The goal is to give investors time to absorb information, reduce panic, and allow exchanges to address operational problems.
Circuit breakers do not guarantee that prices will recover, and they are different from ordinary trading halts applied to a single company. Modern U.S. rules use percentage declines in the S&P 500 to determine market-wide Level 1, Level 2, and Level 3 halts.