The COVID-19 outbreak and the breakdown of negotiations between oil producers each contributed to a fall in the stock market, ending the longest bull market in history and bringing about a period of volatility. As of March 23, 2020, movements in the stock market had led to four 7% declines in the S&P 500 index in 2020, each triggering cross-market circuit breakers and bringing trade to a halt across exchanges (trading halt). The SEC relies on various mechanisms and discretionary powers capable of pausing or stopping the trade of individual securities or general market activity. Fifteen-minute trading halts, for instance, occur automatically when the S&P 500 index declines by 7% and 13% from the prior day's close, and day-long trading halts occur automatically when the S&P 500 index declines by 20% from the prior day's close. There are also automatic mechanisms to limit trading of specific securities during particularly volatile periods, and to prohibit short sales of securities that have decreased by more than 10% from the prior day's closing price.
The SEC and the Financial Industry Regulatory Authority (FINRA) also have certain discretionary powers to restrict trading. The SEC, upon notifying the President of the United States and unless the President disapproves, may suspend all trading on any national securities exchange for up to 90 days if they believe that it is in the public interest. Both the SEC and FINRA may effect the suspension of particular securities for up to 10 business days, and the SEC also has the authority to act to halt short selling. As markets continue to react to rapidly changing current events, it will be important for companies to stay abreast of new guidance and prepare for the contingencies outlined above. If you are interested in a more detailed analysis of this topic, you may wish to refer to Shearman's related client publication.
Notably, on March 23, 2020, the New York Stock Exchange (NYSE) took the unprecedented step of closing its trading floors and moving exclusively to electronic trading. For more details on this development, see the NYSE's public release on the topic here.
Originally published 13 May, 2020
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