Mechanisms to force timeout in trading yet to be triggered

Sat, October 11, 2008

By SUN MEDIA NEWS SERVICES

NEW YORK -- As harrowing as North American stock market plunges have been in recent days, they still haven’t been enough to trigger the "circuit breaker" mechanisms that result in an automatic timeout in trading.

New York’s Big Board implemented the automatic halts after the stock market crashed during the late 1980s to force traders to take a break from frenzied selling. The rules are almost identical for Canada’s biggest market, the Toronto Stock Exchange.

But even amid the massive losses seen in the market this week, the thresholds have yet to be breached, unlike in many other nations which have temporarily suspended trading multiple times.

In concert with U.S. regulators, the Investment Industry Regulatory Organization of Canada sets trigger points for the Toronto Stock Exchange at three fluctuating levels representing 10 per cent, 20 per cent and 30 per cent of the Dow Jones industrial average.

The levels are calculated by the New York Stock Exchange at the beginning of each calendar quarter to establish a specific point value for the quarter, using the average close for the preceding month. Each trigger is rounded to the nearest 50 points.

The Dow Jones industrial average would have to fall 1,100 points in a day to trigger the first halt. Based on Thursday’s Dow close of 8,579, the threshold number to cause the market to stop yesterday would be 7,479. If that point had been reached before 2 p.m., the market would have shut down for an hour. If the threshold was breached between 2 p.m. and 2:30 p.m., the halt would have lasted 30 minutes. No trading stops would take place if the plunge occurred after 2:30 p.m.

If the index were to fall 2,200 points before 1 p.m., the market would close for two hours. If such a decline took place between 1 p.m. and 2 p.m., there would be a one-hour pause. The market would close for the day if stocks sank to that level after 2 p.m.

Yesterday, the stock exchange in Vienna was suspended until midday after stocks tumbled 10 per cent at the opening bell and in Russia, representatives of the MICEX and RTS exchanges said they suspended regular trading until further notice under orders from financial regulators.

Indonesian authorities suspended trading indefinitely on the Jakarta Stock Exchange after they had halted trading Wednesday after the index plunged more than 10 per cent.