In an attempt to prevent a devastating stock market crash, as in the 2015 Chinese Stock Market crash, the Chinese government implemented a circuit breaker system. This new system creates a fifteen minute suspension of trading, or "cooling period", to allow brokers to regain composure whenever significant losses over 5% are recorded. In addition, the circuit-breaker system will automatically close the market if it is triggered a second time with losses over 7%.
When the CSI 300 index of blue-chip stocks fell 5% on January 1st, the circuit breaker system was triggered. Shortly after the first fifteen minute cooling period ended, another was enacted due to CSI 300 index falling another 7% leading to a complete closure of the market for the rest of the day.
The crash of the Chinese Stock Market will affect all economies of the world. As of January 7, 2016 Wall Steet's Dow Jones and S&P 500 indexes fell 2.3% in response to the declining markets in Europe and Asia.
"They're just learning their way around the market and they set the circuit breakers too tight," said John Rutledge, chief investment strategist at Safanad, on CNBC's "Squawk Alley."
