Circuit Breaker (Price Band)

A circuit breaker — also called a price collar or price band — is a rule that prevents any single trade from being executed at a price that deviates too far from the most recent transaction price. In Prometheus, the band is expressed as a percentage: a 20% band means no order can match more than 20% above or below the last trade price.

Why ETS markets use them

Carbon markets can be thin and volatile, especially in early periods before liquidity builds. Without a band, a single aggressive order can move the clearing price dramatically, triggering panic buying or selling by other participants. A circuit breaker gives the market time to re-equilibrate, which is particularly valuable in classroom settings where participants are still learning price discovery.

Why some prefer to disable them

In a well-functioning market, prices should be free to find their equilibrium quickly. A tight band can prevent legitimate price corrections — for example, after new compliance data is announced. Researchers studying efficient price discovery often disable the band entirely (set to 0) so that order flow alone determines price.

Real-world precedent

The EU ETS does not use a hard circuit breaker. Instead, it relies on the Market Stability Reserve (MSR), which adjusts the supply of allowances over time to dampen structural price swings without imposing a per-trade collar. India's nascent CCTS rules have not yet specified a circuit breaker mechanism.