Original title: U.S. stocks opened 4 minutes to trigger a fuse! Trader: unprecedented "headache"
Shortly after the U.S. stock market opened on Monday, the S & P 500's direct plunge of 7% triggered the first layer of fuse mechanism and suspended trading for 15 minutes.
As New Crown Pneumonia spreads further worldwide, and investors worry that OPEC + may start a comprehensive crude oil price war, panic has triggered investors to sell US stocks frantically. The market opened just 4 minutes on Monday, and the S & P 500 index plummeted 7%, triggering the first layer of fuse mechanism, suspended trading for 15 minutes, and resumed trading at 9:49 am Eastern. However, after the resumption of trading, the decline in U.S. stocks continued. After the Dow opened 1800 points lower, the intraday decline once widened to 2000 points, and then the decline narrowed to 1500 points. The Nasdaq fell about 5%.
As a matter of fact, due to the rapid occurrence of the fuse, coupled with the abnormally large trading volume this morning, many stocks failed to complete the first transaction before the stock index melted.
Watertown Financial Market analyst and NYSE trader Matthew Cheslock recalled that this was different from the 2008 subprime crisis, when U.S. stocks showed a 1-2% decline in each trading day for a long time . In contrast, the magnitude of this plunge was unexpected.
Chesslock described: "In 2008, it was like being beaten every day with a hammer. Today, this is a head punch."
What is the fuse mechanism of US stocks?
As a protection mechanism for market transactions, circuit breakers set a certain stock price fluctuation range in advance. When the stock market falls within this limit, the market will automatically suspend trading for a period of time in order to slow down the transaction speed and enable investors to Fully understand the market conditions, absorb information and make decisions based on market conditions to prevent panic selling from continuously expanding and adversely affecting the market.
The US stock index has set a total of three fuse boundaries, according to the rules of the NYSE:
If the S & P 500 index falls by 7%, then the first-level fuse mechanism will be triggered and the market will suspend trading for 15 minutes;
If the stock index declines to 13% after the resumption of trading, the second-level fuse mechanism will be triggered, and trading will be suspended for another 15 minutes;
If the subsequent recovery reaches a cumulative decline of 20%, the day's trading will stop directly until the next trading day.
The suspension caused by the fusing mechanism is only applicable during 9: 30-15: 25 EST. After 15:25, the transaction will not be suspended even if the first or second layer fusing mechanism is triggered. If the trading day is half-day trading, the applicable time becomes 9: 30 ~ 12: 25. It is worth noting that a certain level of fusing mechanism will only be triggered once a day.
In addition, during non-US trading hours, if the price of US stock index futures rises or falls by 5%, the fuse mechanism will be triggered. After the fuse is triggered, futures contracts with a rise or fall of more than 5% will not be able to be traded.
The origin of the US stock fuse mechanism
The main reason for the US stock market to introduce the fuse mechanism was "Black Monday" in 1987. On October 19, 1987, the Dow plunged 508.32 points, a drop of 22.6%. Three months later, the fusing mechanism was introduced in February 1988 and was first implemented in October. In January 1997, the US fusing mechanism was adjusted to increase the fusing trigger threshold by 100 points on the original basis. Subsequently, on October 27, 1997, the Dow Jones Industrial Index plummeted 7.18% to close at 7161.15 points, the largest decline since 1915. This day was also the first time the fusing mechanism was triggered since its introduction in 1988. That is to say, plus today's fusing, the fusing mechanism set by the US stocks has only been triggered twice during the 32-year period.
On April 15, 1998, the fusing mechanism was revised. It mainly modified two aspects: first, increasing the threshold value and determining the three levels of 10%, 20%, and 30% as the fusing threshold; the reference standard for the decline was not more than the previous trading day. The closing price is determined by the NYSE at the beginning of each quarter, based on the daily closing average of the previous month to determine the trigger benchmark.
On May 31, 2012, the NYSE revised the stock index fusing mechanism. One is to replace the Dow Jones Industrial Index with the more decentralized S & P 500 index as the benchmark for fusing. The second is to change the fusing threshold from the previous 10% and 20%. , 30% are changed to 7%, 13% and 20%. The new fuse mechanism has been implemented since February 4, 2013.
There has been controversy since the introduction of the fuse mechanism for US stocks. Some investors have complained that this mechanism may cause more problems, but supporters believe that the fuse mechanism can calm down investors and take a step back to observe the current market situation and figure out what they will do next. (Huang Yu)