The last time a stock selloff set off a circuit breaker occurred in March 2020, when the COVID-19 epidemic was just getting started.
Monday, April 7, saw a sharp decline in Asian stock markets as the sell-off associated with US President Donald Trump’s “reciprocal” tariffs persisted. As speculators bet that the growing likelihood of a recession could result in a reduction in US interest rates as early as May, exchange operators in Taiwan and Japan were forced to temporarily suspend trade in order to prevent panic selling.
When the popular Nikkei 225 futures product in Japan was about to drop more than 8%, the “circuit breaker” system stopped trading for ten minutes. The Wall Street Journal reported that the circuit breaker for the Nikkei 225 and a number of other futures contracts was activated at 8:45 a.m. Tokyo time. Ten minutes later, it came to an end without having an impact on the Tokyo Stock Exchange’s spot trading, or direct share purchases and sales.
After plunging over 9% earlier, the Nikkei 225 was down an eye-watering 6.5 percent in early trading on Monday in Japan.
Following a sharp drop of about 10% on Monday, Taiwanese stock traders also pulled a circuit breaker. In order to combat market volatility, the head of Taiwan’s stock exchange said that more stability measures would be put in place if necessary.
When trading resumed after a long weekend, the weighted index of the Taiwan Stock Exchange, the Taiex, fell 9.8% at the opening. As nations rushed to lessen the impact of Trump’s taxes, Taiwanese markets were closed for a holiday on Thursday and Friday, as global stock values plummeted by trillions of dollars.
Taiwan’s benchmark index is at its lowest level in more than a year. In an effort to calm the market before trading reopened on Monday, Taiwan’s top financial regulator temporarily restricted short selling, or the wager that shares will decline, on Sunday in anticipation of unrest.
According to a statement from the Financial Supervisory Commission, the measures will remain in effect until Friday.
Taipei was slapped by a 32 percent tax on its imports, excluding semiconductor chips, despite its efforts to evade Trump’s threatening tariffs by promising more investment in the US and more purchases of US energy. Key Taiwanese companies’ stock fell by about 10%, including Foxconn, the electronics behemoth, and chipmaker TSMC.
There was also a blood bath in other markets, such as Singapore and Hong Kong in Asia. Singaporean stocks fell 8.5 percent, and the Kospi in South Korea fell 4.8 percent. Hong Kong stocks fell more than nine percent. In mainland China, the Shanghai Composite Index fell 4.21 percent, or 140.84 points, to 3,201.17, while the Hang Seng Index down 9.28 percent, or 2,119.76 points, to 20,730.05.
Minutes after trading began on Monday, Australian blue-chip stocks, a benchmark index of the 200 biggest listed companies in the nation, also fell 6%. As equities fell 9.8% at the opening, a circuit breaker was activated on the Taiwan stock market.
Indian Shares also opened sharply lower on Monday. The Nifty 50 declined 5 per cent to 21,758.4 in pre-open trade as of 09:08 am IST, while the BSE Sensex fell 5.29 per cent to 71,379.89.
All 13 major sectors declined. The broader small-caps and mid-caps lost 10 per cent and 7.3 per cent, respectively.
With futures contracts for the main boards of the New York Stock Exchange falling precipitously on Sunday, the US market appeared to be showing no signs of recovery. This suggests that the already wounded Wall Street equities will face further suffering when markets reopen on Monday. In erratic trading, benchmark S&P 500 futures fell 4.31 percent, and Nasdaq futures fell 5.45 percent, compounding losses from the previous week.
What Are Circuit Breakers
A characteristic of the stock market called circuit breakers stops trading across exchanges when markets drop sharply. The 1987 stock market disaster known as “Black Monday” gave rise to the proposal. The goal of the action is to stop panic selling and prevent the stock market from plunging further. There are several levels to the pauses.
In the United States, trading would be suspended for fifteen minutes if the S&P 500 fell by seven or thirteen percent. Trading would halt for the remainder of the day if it fell by 20%.
