The Real Impact of Limit Up-Limit Down
The trading pauses enforced by the new Limit Up-Limit Down rule should offer a greater segment of investors time to participate in the price discovery process during significant and rapid price moves.
The Limit Up-Limit Down rule (“LULD”) began rolling out on April 8, 2013. Approved on May 31, 2012, on a pilot basis, the rule provides for market-wide limit up-limit down requirements designed to prevent trades in individual securities from occurring outside of specified price bands. The limit up-limit down requirements are coupled with stock-specific trading pauses to accommodate more fundamental price moves. LULD replaces the single-stock circuit breakers that were introduced following the May 6, 2010, Flash Crash, during which major US equity indexes dropped and then recovered several percentage points within minutes.