What post-1987 crash market safeguard temporarily halts trading when prices move too far?

The post-1987 crash market safeguard that temporarily halts trading when prices move too far is called circuit breakers.

Circuit breakers were introduced in U.S. equity markets after Black Monday on October 19, 1987, when the Dow Jones Industrial Average suffered its largest one-day percentage decline. Regulators and exchanges wanted a mechanism that could pause trading during extreme volatility and give investors time to assess information.

The safeguards originally focused on market-wide price movements and later evolved into rules based on percentage declines in major indexes. A market-wide Level 1 or Level 2 decline can trigger a temporary halt during regular trading, while a Level 3 decline can stop trading for the rest of the session. Separate “limit up-limit down” rules address unusually large moves in individual stocks.

Circuit breakers do not prevent losses or guarantee a recovery. They are designed to slow panic and improve the flow of information. The term is also used in electricity and other industries, but in this financial context it refers to automated trading pauses.