A circuit breaker was introduced after the 1987 crash to pause extreme declines on the New York Stock Exchange.
Circuit breakers are automatic trading halts that temporarily interrupt activity when a market or security moves by a specified amount. They were developed after Black Monday in 1987, when rapid computerized selling helped overwhelm normal trading processes and contributed to a 22.6% one-day fall in the Dow Jones Industrial Average.
The mechanism is designed to give investors and exchanges time to assess information rather than forcing every order through during a panic. U.S. equity-market rules use market-wide thresholds based on the previous day's S&P 500 close, with longer halts applying as losses deepen. Individual securities can also be subject to price bands. A circuit breaker does not prevent prices from falling later, and it is not the same as a margin call, which demands additional collateral from a leveraged investor. The term “trading curb” is sometimes used for related restrictions, but modern safeguards have specific trigger levels and procedures.