Half of the stock exchanges in the world regulate the stock market through different forms and degrees of price restrictions, and the fuse mechanism is one of them. Fuse mechanism, also known as? Circuit breaker? , refers to the stock and futures trading, when the fluctuation reaches the set point, the trading will stop for a period of time, or the trading can continue, but the fluctuation cannot exceed the set point. Simply put, it is a? Fuse? If the price fluctuates too much, the transaction will be automatically disconnected. For example, suppose the price of the circuit breaker is set to plus or minus 7% of the settlement price of the previous trading day, then the circuit breaker will start five minutes after the current market price reaches the price limit of plus or minus 7%. Trading can continue within five minutes, but the declared price can only be within plus or minus 7% of the settlement price of the previous trading day, and the declaration exceeding 7% will not be accepted. After 10 minutes, the daily limit will reach 10%.

The fuse mechanism is the result of the downturn in the American market. People think it was produced in response to the stock market crash of 1987. In fact, in 1982, the Chicago Mercantile Exchange imposed a 3% daily trading restriction on the S&P 500 index futures contract, which can also be regarded as the embryonic form of the fuse mechanism. However, this provision was cancelled in 1983, and the price ceiling was not reconsidered until 1987 stock market plummeted. In 20 12, the benchmark index was changed from Dow Jones index to S&P 500 index. At present, the breaking mechanism is divided into three stages: the first stage falls by 7%, the second stage falls by 13% and the third stage falls by 20%. From 9: 30am to 3: 25pm, when the primary or secondary fuse valve is triggered, the transaction will be suspended15min; At any time, once the market decline triggers the three-level fuse threshold, the trading of the day will be suspended until the close.

The results show that the function of circuit breaker mechanism depends on the intensity of these two effects. The positive role of circuit breakers depends on the self-regulation of the market and the reasonable setting of circuit breakers. The fuse mechanism requires market participants to have the ability to collect information. In order to realize the function of the fuse mechanism to stabilize the stock price, traders need to correct their original irrational judgment within the trading interruption time. Therefore, when the information gathering ability of market participants is affected by abnormal factors, the time of transaction interruption should be chosen. If the value of fuse mechanism is set too high, and the market can adjust the fluctuation of the stock market itself, then the fuse mechanism is meaningless. On the contrary, if the fuse level is too small, it will increase the probability of transaction interruption being triggered, and the information exchange brought by transaction interruption can not alleviate the fluctuation, so the setting of fuse mechanism is meaningless.

It can be seen that the fuse mechanism is actually an emergency measure for the stock market to deviate from its normal operation, and its cooling effect depends on the market's own ability to collect information. The cost-effectiveness of circuit breakers comes from the scale of insufficient liquidity. Through the analysis of cost-utility mechanism, we can find that the preference of market traders for liquidity, the scale of fuse mechanism and the liquidity of stock market will all affect the cost effect of fuse mechanism. Listed companies have a strong preference for liquidity, and the setting level of small fuses will reduce the liquidity of the stock market and enhance the cost effect of fuses. This magnetic attraction effect will further aggravate the liquidity problem of the stock market and strengthen the cost effect of the fuse mechanism.