A circuit breaker is a regulatory instrument that creates a market-wide trading halt for a predetermined period of time. Market-wide trading halts can be halts on trading a particular security, a range of securities, or all securities on the market. 

In Canada, CIRO (Canadian Investment Regulatory Organization) is responsible for enforcing circuit breakers. 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. 

There are two different types of circuit breakers:

• Market-wide circuit breakers
• Single-stock circuit breakers

Market-wide circuit breakers

Market-wide circuit breakers enforce market-wide trading halts when the S&P 500 Index drops by certain percentages. The S&P TSX Composite Index is the reference benchmark if the US markets are closed and the Canadian markets remain open. 

In the United States, the US Securities and Exchange Commission is responsible for enforcing the same circuit breakers. These circuit breakers work in the exact same way, except that they do not reference the S&P TSX Composite Index under any circumstances. 

Different levels of market-wide circuit breakers 
There are three different levels of market-wide circuit breakers capable of triggering market-wide trading halts. Each of these levels trigger when there is a specific percentage decline in the value of the S&P 500 Index from its closing value on the previous trading day.

You can read more about what happens when each of these levels are triggered below.

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

Besides circuit breakers, there are a number of ways that CIRO may halt trading of a particular security. 

Manual halt interventions
These are put in place when a security is not 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 does not 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

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

How trading halts impact your ability to use Wealthsimple

When a market-wide trading halt is in place, you will be able to 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 will not 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.