Updated 
In response to market volatility linked to Trump’s trade tariffs, Japan and Taiwan have issued circuit breakers to prevent mass sell-offs. While this move is gaining attention, the concept itself is not new.
Circuit breakers and trading halts have long been part of global stock markets, serving as an important tool to curb panic-driven sell-offs and restore investor confidence during extreme market movements.
Understanding how these mechanisms work and impact the markets can help investors and traders navigate volatility more effectively.
Key Points
- Circuit breakers help stabilise markets by temporarily pausing trading during extreme volatility. Triggered by sharp price swings within a short period, they give investors and traders time to reassess and prevent panic-driven selloffs.
- Japan and Taiwan recently activated circuit breakers after steep declines linked to US tariff tensions, helping to curb disorderly market moves and limit further losses.
- Since 1987, circuit breakers have been a key part of modern market infrastructure, deployed during major crises such as the 2016 China volatility and the 2020 COVID-19 crash.
What Are Circuit Breakers?
Circuit breakers are built-in market mechanisms that temporarily halt trading when prices move too sharply in a short period. Designed to prevent panic-selling or frenzied buying, circuit breakers are triggered once an index or security hits predefined thresholds.
Used across global exchanges, these market mechanisms help restore order during extreme volatility, giving market participants time to reassess before trading resumes.
Types of Circuit Breakers
There are generally two main types of circuit breakers:
1. Market-Wide Circuit Breakers (MWCBs)
These apply to major stock indices such as the Nikkei 225, S&P 500, or Hang Seng, and are triggered when the index declines by a certain percentage within a trading session. In the US, market-wide circuit breakers operate at three levels [1]:
| Level | Trigger | Action |
| Level 1 | 7% drop | Trading halts for 15 minutes |
| Level 2 | 13% drop | Trading halts for 15 minutes |
| Level 3 | 20% drop | Trading halts for remainder of the trading day |
2. Single-Stock Halts
These occur when an individual stock moves beyond a specific percentage within a short timeframe. Some exchanges also implement limit-up/limit-down rules, capping how far prices can rise or fall— especially in futures and commodities markets.
For example, in March 2020, trading in Tesla Inc. (TSLA) was temporarily halted after the stock dipped over 10% within a single day, triggering a single-stock circuit breaker [2].
Tariff Shocks and Trading Halts: The Impact on Asian Markets [3]
On 7 April, Asian stock markets tumbled as fears over US President Donald Trump’s reciprocal tariffs rattled investor confidence.
Japan halted trading on Nikkei 225 futures for 10 minutes after prices plunged more than 8%. While this measure didn’t directly affect stock trading on the Tokyo Stock Exchange, it helped slow the initial wave of panic. The Nikkei 225 eventually recovered from a near 9% drop to trade 6.5% lower.
Taiwan’s stock market faced similar turmoil, with the Taiex index falling 9.8% at the open—its steepest decline in over a year. The sharp selloff came after a long weekend, during which global markets had already lost trillions in value. In response, exchange operators activated circuit breakers to stabilise trading.
In addition, Taiwan imposed temporary short-selling limits, which are expected to remain in place until Friday.
Circuit Breakers Over the Years
Here are some key historical events that have triggered circuit breakers:
Black Monday 1987: Circuit Breaker Origin [4]
On 19 October 1987, US stock markets experienced their largest single-day percentage drop in history.
The Dow Jones Industrial Average plunged 22.6% in one session, exposing vulnerabilities in market infrastructure and investor behaviour.
Now known as “Black Monday,” the stock market crash had no single cause but was linked to a mix of program trading, overvaluation concerns, and widespread panic selling. In response, regulators introduced the first circuit breaker as part of broader reforms to enhance market stability.
China 2016: Policy-Driven Volatility [5]
China introduced its circuit breaker system at the start of 2016, aiming to control extreme market swings.
However, the rollout backfired.
That’s because the new mechanism halted trading on 4 & 7 January after the CSI 300 index dropped 7% each day. Instead of calming markets, the frequent halts accelerated panic selling, as investors rushed to exit before another stoppage.
Just four days after launch, regulators scrapped the circuit breaker system, citing unintended consequences and mounting concerns.
March 2020: COVID-19 Market Panic [6]
During the early stages of the COVID-19 pandemic, global markets faced unprecedented uncertainty and volatility. In the US, the S&P 500 triggered market-wide circuit breakers four times in March alone—on 9, 12, 16, and 18 March.
Each time, the index fell by 7% shortly after opening, prompting an automatic 15-minute trading halt to curb panic-driven selling, as a result of worsening health data, lockdown announcements, and economic shutdown fears.
While these pauses didn’t prevent broader market declines, they gave investors a chance to process new information and adjust strategies during a highly volatile period.
Conclusion
Circuit breakers and trading halts function as essential safeguards in stabilising today’s fast-moving financial markets.
As seen in Japan’s and Taiwan’s recent responses to tariff-induced volatility, these mechanisms aren’t designed to prevent losses—they create critical pauses for markets to absorb information and recalibrate.
While their effectiveness depends on timing, structure, and execution, circuit breakers remain a proven tool for reducing systemic risk, helping to maintain investor confidence during periods of extreme market stress.
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References:
- “‘Circuit breaker’ triggered again to keep stocks from falling through floor. What you need to know – CNBC”. https://www.cnbc.com/2020/03/12/stock-futures-hit-a-limit-down-trading-halt-for-a-second-time-this-week-heres-what-that-means.html . Accessed 7 April 2025.
- “Tesla Stock Plummets 50% Since December. Here’s How Investors Can Manage The Volatility – Forbes”. https://www.forbes.com/sites/shaharziv/2025/03/11/tesla-stock-plummets-50-since-december-heres-how-investors-can-manage-the-volatility/ . Accessed 7 April 2025.
- “Japan, Taiwan Markets Hit Circuit Breaker As Trump Tariffs Deepen Panic – NDTV”. https://www.ndtv.com/world-news/stock-market-today-japan-nikkei-taiwan-taiex-hit-circuit-breaker-donald-trump-tariffs-deepen-investor-panic-8104870 . Accessed 7 April 2025.
- “Global stock market meltdown leaves Wall Street fearing repeat of 1987’s Black Monday amid Trump tariff fallout – Daily Mail UK”. https://www.dailymail.co.uk/yourmoney/article-14577875/black-monday-fears-trump-tariffs-stock-market.html . Accessed 7 April 2025.
- “China drops stock market ‘circuit breaker’ after four days – CNN Business”. https://money.cnn.com/2016/01/07/investing/china-markets-circuit-breakers-suspension/index.html . Accessed 7 April 2025.
- “History of Stock Market Circuit Breakers – Sharre Planner”. https://www.shareplanner.com/blog/stock-market-history/history-of-stock-market-circuit-breakers.html . Accessed 7 April 2025.
