COVID-19 market turmoil tests NYSE’s shutdown circuit-breakers

For the second time this week trading on the New York Stock Exchange halted for 15 minutes this morning when a market drop triggered the exchange’s internal circuit breaker, shortly after 9:30am.

The control, part of the NYSE’s automatic provisions to pause trading, has been put to the test since markets first began realizing the extent of the economic damage a worsening COVID-19 outbreak could cause in the U.S.

The circuit-breaker system used by the NYSE — and other large U.S. trading platforms per SEC rules — was implemented after the Black Monday stock crash of 1987, when major exchanges fell 20% in one day.

As the economic fallout from a widening COVID-19 outbreak manifests, it may challenge the digital contingency provisions of America’s largest stock exchange.

TechCrunch received some background on the circuit-breaker system from the NYSE.

“The equities and options exchanges have procedures for coordinated cross-market trading halts if a severe market price decline reaches levels that may exhaust market liquidity,” a spokesperson said.

The NYSE has three circuit-breaker thresholds that switch on if there are significant declines in the S&P 500’s previous day value: a Level 1 (for a 7% drop), Level 2 (at 13%) and Level 3 (at a 20% decline), per info provided to TechCrunch by the NYSE.

A Level 1 or Level 2 decline shuts down the market for a minimum of 15 minutes; a Level 3 circuit-breaker suspends NYSE activity for the remainder of the trading-day, according to the exchange.

After President Trump announced a U.S.-Europe travel-ban Wednesday evening, the Dow fell 2100 points shortly after opening Thursday, activating the NYSE’s Level-1 control, to halt a rapid value drop in stocks.

NYSE 2009

“The market-wide circuit breaker triggered this morning operated exactly as designed, giving investors additional time to absorb information and understand what’s happening in the market,” an NYSE spokesperson told TechCrunch.

The Dow Jones Industrial Average and S&P 500 — which track the performance of major stocks on the NYSE and NASDAQ — have lost over 20% in value since the COVID-19 (aka coronavirus) began to the spread in the U.S.

By mid-day Thursday, the Dow was on track for its sixth-worst decline in history.

Market volatility around COVID-19 — which originated in China and has spread to Europe and the U.S. — will test the NYSE’s contingency plans for a sustained market selloff.

While there’s been some chatter about America’s largest stock exchange shutting down completely — which hasn’t happened since the September 11 attacks — there are no plans to close at the moment.

“The NYSE is carefully monitoring the spread of COVID-19 and has robust contingency plans, tested regularly, to enable continuous operation of the NYSE exchanges should any facilities be impacted,” a spokesperson told TechCrunch.

In a memo obtained by Reuters, the NYSE’s Chief Operating Officer Michael Blaugrund noted the exchange had limited visitors and closed some public-facilities within its 11 Wall Street structure.

The NYSE also shared a contingency memo with TechCrunch describing business continuity plans for the stock market, and its big digital-board, to operate trading remotely if there is a personnel shutdown of the main-floor.

Update: This story was updated to include reference on circuit-breakers being used across major U.S. securities-exchanges.