WHAT IS Curbs In
Curbs in is a phrase indicating that trading curbs are in effect and active on a securities exchange. Curbs are restrictions or limits on trading a specific security, basket of securities or entire market. During curbs in, trading is suspended. When curbs are not in effect it is called "curbs out."
BREAKING DOWN Curbs In
Curbs in is a term used to signal that trading curbs, called circuit breakers, are currently in effect. Curbs are mechanisms that trigger a halt or suspension of trading of either a specific security or the entire market when a specific volume of loss occurs. Curbs are used in securities markets all across the world. The curbs in effect in the New York Stock Exchange (NYSE) were instituted in 1987 and are codified in the Securities and Exchange Commission Rule 80B. Currently, Rule 80B has three levels of curb, set to halt trading when the S&P 500 Index drops 7 percent, 13 percent or 20 percent.
Some analysts believe that curbs keep the market artificially volatile by causing momentum when the market hits a limit and trading stops, and that if securities and the market were allowed to move freely they would settle into a more consistent equilibrium.
History of Curbs
On October 19, 1987, known as Black Monday, securities markets across the world crashed in a domino effect. In the U.S., the Dow Jones Industrial Average (DJIA), an index that is a general indicator of the state of the stock market and economy as a whole, crashed by 508 points, which was 22.61 percent. In the wake of this crash, then-President Ronald Reagan assembled a committee of experts and tasked them with coming up with guidelines and limits to prevent total market crash again. The committee, called the Brady Commission, determined that the cause of the crash was lack of communication because of a fast market, leading to confusion among traders and freefall of the market. To solve this problem they instituted a device called a circuit breaker, or curb, which would halt trading when the market hit a certain volume of loss. This temporary stop of trading was designed to give the traders space to communicate with each other. The original intention of the circuit breaker was not to prevent dramatic swings in the market, but to give time for this communication.
Since that time, other trading curbs have been instituted and have come in and out of use, including a program trading curbs that lasted for five days in November 2007.