A Market Guardrail named Limit Up Limit Down


Empty wet road

Stocks trade faster and more frequently than ever before, and make volatile price action inevitable.  There are, however, guardrails in place to protect the trader, and one of them is known as Limit Up Limit Down, or LULD.

Back in 2012, the SEC approved a National Market System (NMS) plan to limit price variability to a specific range. The range, or price band, is governed by statistical measures, a stock's tier and reference price, and the time of the trade; prices are markedly volatile near market open and market close. To see the specific rules, visit the Limit Up Limit Down website.

While at the NYSE, I had the privilege of working on this project. It wasn't easy. The scope spread across multiple systems and multiple teams. The specifications -- like all projects -- were ambiguous at first, and needed several iterations.  Questions arose, such as what happens to the reference price if a trade was cancelled, corrected, or flagged as an error? 

We were careful during rollout, selecting a handful of symbols for the pilot release. Later, symbols were grouped into two tiers (which also affected the price band calculation): tier 1 comprised of all securities in the S&P500, the Russell 1000, and select ETFs, while tier 2 made up all other NMS securities. 

Today, LULD is routine plumbing.  And there's even "an app for that."  I wrote it for fun, it's free, and available for both iOS and Android.  While LuldCalc can serve as a basic calculator, it's more of an educational tool for those involved with market data, including software developers, operations, QA, financial analysts, and economists.  For an excellent explanation of LULD and other market guardrails, look no further than Traders Magazine: All About LULDs, written by Phil Mackintosh, chief economist at Nasdaq.


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