Increasing fears over the coronavirus have combined with the emerging threat of an oil price war to trigger the first significant market-wide trading halt in 30 years. Circuit breaker rules were originally conceived following another Monday panic: the October 19 crash of 1987.
Already there is discussion about broader SEC intervention. Bloomberg News had a ready-to-go story on tools that SEC might use to halt a panic. [1] Banning short selling is a tried and true favorite of many market pundits. Closing markets, like after the 9/11 attacks, is another. As I write, senior SEC staff are likely huddled around a table on the 10th floor conference room overlooking the capital deciding on what to do. That is where important meetings between the Chairman and division directors are usually convened.
To be sure, this is a significant event. After the markets fell 23% on a single day in 1987, a Presidential task force recommended a market wide circuit breaker to protect the market from future such events. [2] The first appeared shortly thereafter, followed by periodic recalibrations to reflect market learning. [3] The current threshold is a 7% decline in the S&P500 index, which is what triggered the day’s (March 9, 2020) halt. This is arguably the first time since 1987 that active trading was halted by a market development of the type that regulators envisioned when establishing the triggers (set aside the 9/11 terrorist attack, a day when markets did not open).
But we are not at the point where more drastic measures should be considered. The circuit breaker did its job. It allowed the market to take a breath. What followed was intense but otherwise orderly changes in prices, commensurate of ‘human’ reactions to developing news and uncertainty (more on that in a moment).
That said, if my decade of experience at the SEC is any guide, the current Commissioners and senior staff are playing out even worse market scenarios and what to do should they emerge.