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Pisani: Circuit Breakers Worked As Expected

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Pisani: Circuit Breakers Worked As Expected

Market-wide and individual stock circuit breakers were put to the test Monday and worked exactly as expected, according to CNBC's Bob Pisani.

What Happened

U.S. stocks plummeted Monday amid ongoing coronavirus concerns and a new declaration of an oil price war pitting Saudi Arabia against Russia. Energy stocks were hard hit, including Halliburton Company (NYSE: HAL) which was individually halted at 10 a.m. and 10:22 a.m.

Prior to that, Halliburton's stock was halted along with every other stock at 9:33 a.m. Stock market rules impose a 15-minute breather if the S&P 500 index falls by 7%.

Circuit breaker rules were revised last decade and were implemented for the first time on Monday.

Why It's Important

The circuit breakers passed with flying colors although it is worthwhile to reiterate its purpose. The circuit breaker is designed to pause trading and help create liquidity, not to help improve any sentiment, according to Pisani. A brief pause forces traders and investors to "catch their breath" and do the math and figure out how much more selling needs to be done or to evaluate the merits of buying the dip.

"In the end, the system didn't reverse the market slide, but it at least put a modest brake on a very ugly start," Pisani said.

It remains to be seen if market-wide circuit breakers will kick in moving forward.

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