Proponents of circuit breakers argue they can slow sell-offs and help restore market confidence. But getting them right isn’t easy. If the pauses are set too wide, they’re rarely triggered. And too narrow of pauses can lead to frequent, unwanted stoppages. The bigger upshot: it’s unclear whether circuit breakers actually remedy panic selling.

Banning Shorts
The SEC’s September 2008 decision to temporarily prohibit short-selling of financial stocks wasn’t made lightly and came amid intense pressure on the agency from the Federal Reserve and Treasury Department.

Wall Street was rampant with speculation that hedge funds were engaging in manipulation by betting against banks and then spreading falsehoods that the firms were close to insolvency. John Mack, Morgan Stanley’s then CEO, sent a memo to employees at the time arguing that the market was “controlled by fear and rumors.”

In a 2013 paper, Harvard University researchers argued there’s little evidence that the ban lifted stock prices. In drawing that conclusion, they noted that the SEC announced the prohibition on the same day that there was a much more important catalyst for bank stocks -- the Fed and Treasury revealed that they were working on a plan to bail out Wall Street.

Companies that were later added to the SEC’s list of shares for which short selling was banned never experienced a price bump as a whole, the Harvard academics wrote. In fact, these companies had negative returns.

Shuttering Markets
Market closures are rare -- U.S. trading was shuttered for two days in October 2012 due to Hurricane Sandy and for a week after the Sept. 11, 2001, terrorist attacks. Trading was never suspended during the 2008 financial crisis, a sign of how hesitant regulators and exchanges are to do so.

Based on precedent, coronavirus is more likely to cause a market closure because it’s preventing financial industry employees from getting to work than because it’s spurring a prolonged market slump.

Uptick Rule
For decades, traders were prohibited from short-selling U.S. stocks until their prices experienced an uptick. In other words, if every price that a stock traded at was lower than the preceding trade, then a market participant couldn’t ever bet against it.

In 2007, the SEC did away with the uptick rule after determining that it didn’t prevent manipulation but did reduce market liquidity. There were also serious questions raised about whether the regulation still made sense in the era of lightning-fast electronic trading.

When stocks tanked during the financial crisis, many on Wall Street and in Congress partly blamed the removal of the uptick rule. So in 2010, the SEC brought the regulation back in a modified form. In the new version, short selling is restricted if a stock falls 10% from the previous day’s close. When the 10% threshold is triggered, traders can only execute short sales at a price above the market’s best bid, and the curb is in place through the following trading day.