Limit Up-Limit Down

Limit Up-Limit Down (LULD) is a mechanism designed to reduce extraordinary market volatility and extreme price movements in individual securities. LULD prevents trades in individual securities from occurring outside specific price bands that update continuously throughout the trading day.

The price bands for each security are set at a percentage level above and below a reference price (generally the average trade price over the immediately preceding five-minute period).

How LULD works:

Every security has an upper and lower price band with the reference price as the mid-point. If an offer reaches the lower price band or a bid reaches the upper price band that stock will enter a limit state (a pause) for 15 seconds.

That security can exit that Limit State if, within 15 seconds, all quotations at the band are executed or canceled in their entirety.

If the market does not exit a Limit State within 15 seconds, the Primary Listing Exchange declares a five-minute Trading Pause, which halts trading on all exchanges and off-exchange trading venues where that security is traded.

If the Primary Listing Exchange is unable to re-open under its auction rules at the end of five minutes (e.g., market order imbalance remaining or pair-off is outside its auction collar bands), the Trading Pause is extended in five-minute segments until the Primary Listing Exchange can open with a trade or quotation.

Trading will not resume without price bands.