5.13.3. Trading Pauses on a Security
The limit up and limit down (LULD) plan was created by FINRA and the exchanges to trigger certain precautions when the bids and offers on an exchange-listed stock move sharply and suddenly. The LULD rules define a price range for each stock. The term price band is used to refer both to the price range itself, as well as the prices at its high end (called the upper price band) and low end (called the lower price band).
A stock’s price band is defined using its average price over the previous five minutes as a reference price. The reference price is at the center of the price band. The upper and lower price bands are a certain percentage above or below the reference price. So if the reference price is $100 and the percentage is 5%, the price band will be $95 to $105 ($100 plus or minus $5, which is 5% of $100).
Whereas the reference price is constantly changing based on the last five minutes of trading, the percentage is only calculated once a day, based on the stock’s closing price from the previous day.
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Closing Price on Previous Day |
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|
Over $3.00 |
$0.75 to $3.00 |
Less than $0.75 |
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|
Tier 1 (securities listed on the S&P 500 or Russell 2000, and selected others) |
5% |
20% |
$0.15 or 75%, whichever is less |
|
Tier 2 (all other NMS securities) |
10% |
20% |
$0.15 or 75%, whichever is less |
In the first 15 minutes and the final 25 minutes of the trading day, the percentage is doubled. For example, a Tier 1 security that closed at $3.01 the previous day will have a percentage of 10% for the first 15 minutes of tradin