Securities Trader Representative (Series 57) Practice Exam

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What is the maximum decline percentage that will halt trading in marketwide circuit breakers?

The correct answer is: 7%

The maximum decline percentage that will halt trading under marketwide circuit breakers is 7%. This is a critical threshold set by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) to help manage extreme volatility in the markets. When the S&P 500 index drops by 7% from the previous day's close, a marketwide trading halt is triggered, which halts trading for a specified period. This is intended to provide market participants with time to digest information and prevent panic selling. Understanding this threshold is essential for traders and market participants, as it underscores regulatory measures in place to maintain orderly market conditions and mitigate sharp declines that could lead to systemic issues. The circuit breaker system is divided into different levels based on the extent of market decline, with different actions taken at each level (such as halts at 13% and 20% declines) to further ensure market stability.