If the KOSPI Falls 3% in a Day, Does the Circuit Breaker Trigger? How to Tell the 8%, 15% and 20% Levels From the Sidecar's 5% Level
When a headline says the KOSPI fell more than 3% in a day, people start asking whether a circuit breaker is coming. But a circuit breaker only starts when the index falls 8% or more from the previous close. A 3% drop is less than half of that threshold. Based on Korea Exchange rules, this post separates the circuit breaker from the sidecar, explains when each one triggers, what each one stops and for how long, and what individual investors should know during trading hours. It explains the mechanisms; it is not investment advice.
The circuit breaker works in stages when the index falls 8%, 15% and 20%
The circuit breaker's formal name is the trading halt system. Stage 1 triggers when the KOSPI is down 8% or more from the previous close and stays there for one minute. Stage 2 triggers when the index is down 15% or more and has fallen at least 1% further than the Stage 1 trigger level, again for one minute. Stage 3 triggers when it is down 20% or more and at least 1% below the Stage 2 level for one minute. The "one minute" condition is there so that a brief spike down that immediately recovers does not set it off.
Stages 1 and 2 pause for 20 minutes, and Stage 3 ends the trading day
When Stage 1 or Stage 2 triggers, trading in all stocks is halted for 20 minutes, and linked futures and options trading stops with it. During the halt you cannot place new orders, though you can cancel existing ones. When trading resumes, it does not go straight back to continuous trading but starts with a 10-minute single-price auction. Stage 3 is different. Once the 20% condition is met, all securities market trading ends for the day and no more orders are accepted.
Each stage can trigger once a day, and none triggers in the last 40 minutes before the close
Each stage can trigger only once per day. If Stage 1 has been triggered, it will not trigger again the same day. Stages 1 and 2 also do not trigger in the 40 minutes before the market closes, to leave time to determine the closing price; Stage 3 can still trigger after that point. The circuit breaker applies only to the regular session, not to the after-market. It has been triggered on the KOSPI before, during the pandemic crash in March 2020, so the system is not merely theoretical.
The sidecar pauses program trading for 5 minutes when futures move 5%
The sidecar is a much weaker mechanism than the circuit breaker. It triggers when the price of the benchmark in the derivatives market rises or falls 5% or more from the base price and stays there for one minute, and it suspends program trading buy or sell orders for 5 minutes. When prices are falling, program sell orders are affected; when rising, program buy orders. After five minutes, orders are processed in the order they were received. Ordinary orders that individuals place through a brokerage app keep executing during those five minutes, so the sidecar does not stop the whole market. It also applies only to the regular session and does not trigger in the 40 minutes before the close.
The two systems side by side
They start from different bases. The circuit breaker is based on the spot index (KOSPI), and the sidecar is based on futures prices. What they stop also differs: the circuit breaker halts all trades by all investors in every stock, while the sidecar halts only program trading. The pause is 20 minutes for Stage 1 and Stage 2 circuit breakers (followed by a 10-minute single-price auction) and 5 minutes for the sidecar. The sidecar triggers far more often than the circuit breaker because a 5% futures move is a lower bar than an 8% index drop. So a "sidecar triggered" alert does not mean a circuit breaker is imminent.
Work out how far a 3% drop is from the circuit breaker line
If the previous close was 6,500, an 8% fall would be about 520 points, to around 5,980. A 3% fall is about 195 points. These numbers are only an illustrative calculation; the actual trigger level is set from each day's previous close. Individual stocks also have their own daily price limit (30% up or down), so one stock can move sharply even when the index is calm. Mixing up the index system with the single-stock limit makes it easy to misread what is happening.
Decide in advance so you are not swept along intraday
Knowing the system does not tell you what to do in a crash. But it is worth knowing that you cannot enter new orders during a halt: even if you want to sell, you cannot place a new order for 20 minutes, and the first 10 minutes after resumption are priced by a single-price auction. So it is better to base your decisions on criteria you set beforehand. For which metrics to use when looking at a stock, see our guide to PER, PBR and ROE, and for how to weigh product costs, see our post on ETF expense ratios and tracking error. If you invest with borrowed money, read about how loan interest rates are structured, and if your goal is long-term saving, our post on pension savings and IRP tax credits is also useful.
Summary — check in this order when you see a breaking alert
When a breaking alert uses the word "circuit breaker," first work out which system it is. Check whether the KOSPI is down 8% or more from the previous close, or whether futures have moved 5%. For a circuit breaker, remember that trading stops for 20 minutes (all day at Stage 3) and that the first 10 minutes after resumption use a single-price auction; for a sidecar, remember that only program trading stops for 5 minutes. Check the specific rules, the markets they apply to, and how your brokerage handles orders in Korea Exchange rules and your brokerage's notices, and remember that investment decisions and any gains or losses are your own responsibility.
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