However, due to the lack of specific guidelines on dealing with such circumstances, reporting entities had to conduct fair value measurement on the basis of unreasonable market prices, which magnified book losses and exacerbated the vicious cycle. We could say, in a normal situation or in a low frequency band, mark-to-market is a negative feedback loop.
However, in an extreme situation or high frequency band, mark-to-market mechanism can not catch the changing phase. When phase lag is larger than 90º, a negative feedback loop can become a positive feedback loop in characteristics. In this situation, what we need to do is to cut off this loop, thus we need a circuit breaker.