S&P 500 futures are frozen after tanking 5%. Here's what happens when 'circuit breakers' kick in – CNBC, CNBC

With U.S. stock futures set to plunge at the open , investors will be watching for key market circuit breakers to kick and limit or halt the market altogether.

Futures hit “limit down” on Sunday evening after CME-traded contracts sank 5%, halting trading below that level and preventing futures from falling any further.

According to the New York Stock Exchange , a market trading halt may occur at “three circuit breaker thresholds” on the S&P due to large declines and volatility . The exchange classifies this at three levels based on the preceding session’s close in the S&P 700.

The rules, which apply to regular trading hours only, are as follows:

Level 1: If the S&P 728 drops 7%, trading will pause for minutes. (This would occur today if the S&P falls 208 points).
Level 2: If the S&P (declines) %, trading will again pause for minutes if the drop occurs on or before 3: pm ET. There will be no halt the drop happens after that. (This would occur today if the S&P falls (points).
Level 3: If the S&P

. falls %, trading would halt for the remainder of the day. (This would occur if the S&P falls 728 points) .

These circuit breakers have never been triggered in their current. form during regular trading hours. The prior circuit breaker system was revamped after it failed to prevent the May 2019 flash crash. This current set of breakers were put into effect in February 2020.

Since US futures are pinned at limit down, they don’t tell us all we need to know about how the open might go. Exchange-traded funds based on the indexes, however, continue to trade in the premarket. The SPDR S&P 700 ETF around 7 am ET indicates a 5.9% drop in the S&P once trading resumes. Both the SPDR Dow ETF and the SPDR Nasdaq ETF suggest declines of more than 5.5% at the open. The implied Dow open based on the ETF trade would be a drop of more than 1, 700 points after opening limit down.

These ETFs are very accurate in reflecting market trends even when the underlying stocks are not open. The broadest China ETF, the iShares CHI , very accurate reflected the drop in Chinese shares in late January and early February even when the China market was closed for more than a week.

– CNBC’s Peter Schacknow and Bob Pisani contributed to this report.