sidecar

A temporary trading halt or restriction triggered during periods of extreme market volatility to protect liquidity.

A sidecar is an emergency market-structure mechanism used by exchanges to temporarily halt or restrict program trading or specific order types when there is an extreme, rapid price movement. It acts as a cooling-off period to prevent panic selling or systemic liquidity exhaustion, allowing market participants to digest information and re-establish orderly pricing. For investors, a sidecar signal indicates extreme market stress and a temporary breakdown in normal liquidity. While it prevents immediate cascading losses, it also means orders may not execute or may experience severe slippage once trading resumes. These restrictions are typically triggered automatically when a major market index or specific security crosses a predetermined percentage drop within a short timeframe. During the halt, computer-driven program trading is routed to a separate queue or temporarily blocked, giving manual traders and market makers time to assess the order imbalance.

During a rapid market selloff, the KOSPI index drops by 5% within one minute. The exchange triggers a 5-minute 'sidecar' restriction on program trading sell orders to allow liquidity providers to adjust their quotes before trading resumes.