Overview

A circuit breaker is a regulatory measure that temporarily stops trading in the market. This can be for a single stock or the entire market.

Circuit breakers are used as a "time out" to allow investors and traders a cooling-off period when there are significant declines in the market in a short period of time. In Canada, CIRO (Canadian Investment Regulatory Organization) is responsible for enforcing circuit breakers.

Types of circuit breakers

• Market-wide circuit breakers: These halt trading across the entire market when the S&P 500 Index drops by certain percentages. 
• Single-stock circuit breakers: These stop trading on a particular stock if its price changes drastically in a short period.

How trading halts impact your ability to use Wealthsimple

When a market-wide trading halt is in place, you can use your Wealthsimple account as normal. You can still view your holdings, deposit or withdraw funds, place and cancel orders, or complete any other action in your account.

However, during a market-wide trading halt, any order you place won't go through until the halt is complete. 

There are also a couple of other things you should consider:

• In-product graphs are flat: This does not necessarily mean that the price of a security flatlined at zero. Instead, this is usually because no trades are being executed.
• You can trade Crypto as normal: Crypto trading is not impacted by market-wide trading halts. 

Market-wide circuit breakers

Market-wide circuit breakers enforce market-wide trading halts when the S&P 500 Index drops by certain percentages. If the U.S. markets are closed, Canada uses the S&P TSX Composite Index as the reference benchmark. 

The US Securities and Exchange Commission enforces similar circuit breakers but exclusively uses the S&P 500 Index. They don't reference the S&P TSX Composite Index under any circumstances. 

There are three different levels of market-wide circuit breakers:

Level 1 trading halt

A Level 1 trading halt triggers when the S&P 500 Index drops 7% below its closing value on the previous day. 

When the market triggers a Level 1 trading halt, you can expect the following:

• Trading is halted for 15 minutes if it is before 3:25 pm ET
• Trading continues as normal until market close if it is after 3:25 pm ET

Level 2 trading halt

A Level 2 trading halt triggers when the S&P 500 Index drops 13% below its closing value on the previous day. 

When the market triggers a Level 2 trading halt, you can expect the following:

• Trading is halted for 15 minutes if it is before 3:25 pm ET
• Trading continues as normal until market close if it is after 3:25 pm ET

Before triggering a Level 2 trading halt, the market must first trigger a Level 1 trading halt. For this reason, when entering a Level 2 trading halt, the market would have already gone through a 15 minute halt earlier in that day. 

Level 3 trading halt

A Level 3 trading halt triggers when the S&P 500 Index drops 20% below its closing value on the previous day. 

When the market triggers a Level 3 trading halt, you can expect the following:

• Trading is halted completely for the rest of the day
• Trading will resume the following trading day

Before triggering a Level 3 trading halt, the market must first trigger a Level 1 and Level 2 trading halt (unless after 3:25 pm ET). For this reason, when entering a Level 3 trading halt, the market would normally have already gone through two 15 minute halts earlier in that day. 

Single-stock circuit breakers

Single-stock trading halts enforce single stock trading halts when the price of a single stock moves 10% or more in a single trading day (between 9:50 am to 3:50 pm ET). These halts last for five minutes before allowing trading to resume.

Other interventions that can lead to trading halts

CIRO can halt trading of a particular security for other reasons besides circuit breakers. Here are some of them:

Manual halt interventions
These are put in place when a security isn't eligible for a single-stock circuit breaker but work very similarly. Because these stocks often have different liquidity and price volatility, the standard for circuit breakers does not apply. Instead, a surveillance officer’s best judgment is used to put these in place.

Timely disclosure and pending news
Publicly traded companies are required to report information about their business and finances in a timely manner. If a company doesn't disclose information to the public in a timely manner, trading of the stock may be halted.

Volatility pause for erratic price moves
If a stock’s price moves in a suddenly irregular way, a halt may be placed by surveillance officers until they better understand why. 

Learn more about CIRO

To learn more about CIRO and their ability to intervene, check out the resources below:

• CIRO’s page on market volatility
• CIRO’s Guidance on Regulatory Intervention for the Variation or Cancellation of Trades