The 1987 crash-prevention rule that lets U.S. exchanges pause trading after extreme index declines is a circuit breaker.
Regulators introduced modern market-wide circuit breakers after Black Monday in October 1987. The purpose is to create a short pause when prices fall rapidly, giving investors time to absorb information and reducing the risk that automated or panic-driven orders will amplify a plunge.
In the United States, the thresholds are based on the S&P 500's percentage decline from the previous close. Level 1 and Level 2 declines produce temporary trading halts, while a Level 3 decline stops trading for the rest of the session. Circuit breakers do not prevent losses or guarantee a recovery; they are designed to slow disorderly trading. Individual securities can also have separate limit-up and limit-down controls.