Circuit breakers were introduced after the 1987 stock-market crash to pause extreme declines.
The New York Stock Exchange adopted market-wide trading halts after the crash of October 19, 1987, when the Dow Jones Industrial Average fell 22.6% in a single session. The mechanism was designed to give investors time to assess information and reduce panic-driven selling.
Circuit breakers temporarily stop trading when a broad market index moves beyond specified thresholds. In the United States, the modern system is linked to percentage declines in the S&P 500 and includes Level 1, Level 2, and Level 3 thresholds. A Level 3 move halts trading for the rest of the session.
Circuit breakers are not the same as ordinary trading halts on one security, which can occur because of company news or regulatory concerns. They also do not prevent losses; their purpose is to slow exceptionally rapid market movements and provide a cooling-off period.