What is a circuit breaker? Here’s when trading is halted during intense sell-offs

Markets have been disrupted around the world following the announcement of widespread tariffs implemented by President Donald Trump.

The Dow Jones Industrial Average at one point dropped more than 4,000 points, or roughly 10%, in the days after Trump announced tariffs on April 2, worrying investors and stoking concerns of a recession. Trading was briefly halted on some investment options abroad as countries reacted to Trump’s tariffs.

During time periods of intense stock declines, exchanges like the ones in the U.S. have measures in place to prevent chaotic losses.

So-called “circuit breakers” are actions taken by exchanges in order to “prevent large, sudden price moves,” according to the U.S. Securities and Exchange Commission (SEC).

As markets continue to react to Trump’s latest wave of tariffs, here is what you need to know about circuit breakers.

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According to the U.S. Securities and Exchange Commission, circuit breakers are implemented in the S&P 500 Index if there is a “severe market decline.”

During the trading hours of 9:30 a.m. ET and 4 p.m. ET, trading may be paused if the market declines by a specific benchmark set by the SEC. If, after a pause, declines continue, trading could be paused for the day altogether.

The three circuit breaker benchmarks are as follows:

• Level 1: If the S&P 500 falls by 7% in one day, and this happens before 3:25 p.m. ET, trading is paused for 15 minutes. But if the threshold is met at 3:25 p.m. ET or after, trading continues unless a level 3 breaker is reached.

• Level 2: If the S&P 500 falls by 13% in one day, and this happens before 3:25 p.m. ET, trading is also paused for 15 minutes. Similarly to level 1, if the fall happens at 3:25 p.m. or later, trading continues unless a level 3 breaker is reached.

• Level 3: If the S&P 500 falls by 20% in one day, trading is stopped for the remainder of the day.

The U.S. has not triggered any trading pauses in the recent market sell-off, though it came close on April 4, when the S&P 500 dropped 6%. Other exchanges around the world were not as lucky.

Taiwan, a major producer of semiconductors and levied with a 32% tariff by Trump, saw two of its stocks, TSMC and Foxconn, triggering circuit breakers on April 7. Stocks for both semiconductor giants fell by nearly 10% that day, triggering circuit breakers for the Taiwanese market as a whole.

According to Reuters, Taiwan Stock Exchange Chairman Sherman Lin said that steps were being taken to try and stabilize the market amid the tariffs implemented by the U.S.