General Securities Sales Supervisor (Series10) Practice Exam

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Under what condition is a sudden market halt executed?

When the market experiences an increase by 10%
When there is a significant price decline
During any time a public offering occurs
In situations involving high trading volume

The correct answer is: When there is a significant price decline

A sudden market halt, known as a "circuit breaker," is implemented primarily to prevent panic and maintain orderly trading during times of extreme volatility. Specifically, when there is a significant decline in market prices—typically a drop of a certain percentage over a short period—trading is temporarily suspended. This allows investors and traders to process information and make more informed decisions. The mechanism behind this is to enhance market stability and protect against irrational behavior that could exacerbate a negative price trend. The thresholds for activation of these trading halts are established by market regulations and are intended to safeguard both investors and the integrity of the market. Market halts would not typically be implemented for an increase in market value, high trading volume, or just because a public offering is occurring; these scenarios do not pose the same risk of disorderly or unsettling volatility that a significant decline does. Thus, the condition under which a sudden market halt is executed is correctly identified as when there is a significant price decline.