The 1987 market crash led the United States to create exchange-wide circuit breakers.
After Black Monday on October 19, 1987, U.S. regulators examined how rapidly falling prices and automated trading could reinforce one another. The Dow Jones Industrial Average lost 22.6% that day, and other markets also experienced exceptional volatility.
Circuit breakers were introduced to pause trading when broad market declines reached specified thresholds. The goal was to give investors time to assess information and reduce panic-driven selling rather than to prevent prices from falling permanently.
The mechanisms have changed over time. Modern U.S. rules use percentage thresholds tied to the S&P 500, with Level 1 and Level 2 pauses during a regular session and a Level 3 halt if the decline reaches 20%. These safeguards are separate from individual-stock trading halts.