Up and down limits

European markets started the day with heavy losses after a 9% decline in the Nikkei overnight. They are now well above their intraday lows. However, if stock markets were to crash, would trading be suspended?

If you are trading equity index futures - the easiest way to trade stock indexes - the answer is: it depends on the market you're trading. For instance, the Eurostoxx future (Bloomberg ticker: VGA Index) has no down limit. However, the S&P future (Bloomberg ticker: ESA Index) would be halted limit down at 885,75, which represents a 11,75% decline compared to yesterday's close.

Once a market is limit down, bid (buyers) and ask (sellers) offers remain active, but trading only restarts after bids come back above the price at which the market was suspended or after a specific time period (defined by the exchange's rules) is exhausted. Otherwise, it remains suspended for the day and reopens the next day at the matching price between buyers and sellers.

Ps: Central banks have just announced a coordinated global interest rate reduction. Markets have turned around or are trying to do so. The up limit on the S&P future is 1125,75.