New Industry-Wide Volatility Curbs Debut Today – While LRP’s Are Suspended

On April 8, 2013, more than two dozen companies listed on NYSE Euronext’s U.S. exchanges and other U.S. equities markets will make the switch from existing individual stock circuit breakers to Phase 1 of the Securities and Exchange Commission (SEC) approved Limit-up/Limit-down (LULD) trading curbs. LULD is intended to calm markets during extraordinary volatility across U.S. equities venues—the program includes order flow sent or routed directly to the NYSE, NYSE MKT and NYSE Arca community. At the same time by SEC directive, the NYSE’s Liquidity Replenishment Points (LRP) will be reluctantly discontinued—at the very least during the LULD pilot.

LULD is designed to prevent trades in individual National Market System (NMS) securities from occurring outside of specified price bands, which will be set at a percentage level above and below the average reference price of a security over the preceding five-minute period.  In simplest terms, under LULD trades won’t be allowed to take place more than a specified percentage above or below a stock’s recent average price. If no trades occur within the band for more than 15 seconds, a five-minute halt will follow.  LULD also provides for new trading pauses to replace the current Single Stock Circuit Breakers (SSCB).

Following today’s initial roll-out, more securities will be added each week through mid-May until all Standard & Poor’s 500 Index and Russell 1000 Index companies and several hundred exchange-traded products (ETPs) are included.   The curbs will operate from 9:45 a.m. to 3:30 p.m. New York time. Other securities will be added in August to Phase 2 of program, which will then run the full day from 9:30 a.m. until 4 p.m.

As I noted earlier, NYSE and NYSE MKT will suspend LRPs, which have been extremely beneficial to investors and issuers for many years.  While we believe that LRPs would have added to the LULD protections, we are complying with the SEC’s directive yet may seek to reintroduce LRPs after the initial pilot.

We will keep you posted on the progress of the LULD implementation and functionality.

For more information on LULD, go to: Limit Up/Limit Down Overview

ETP Update: Limit Up/Limit Down and Market-Wide Circuit Breakers

Information on trading halts due to extraordinary market volatility: NYSE Circuit Breaker Update

Quick LULD Facts:

Q. What is LULD?

Limit up-limit down is a market-wide mechanism that is intended to address extraordinary market volatility in Exchange Listed Stocks.

Price Bands are established and updated with an upper price (Limit Up) and a lower price (Limit Down) for each stock. Trades and quotes will be prevented from occurring outside the price bands for individual stocks.

Limit up-limit down is a market-wide mechanism that is intended to address extraordinary market volatility in Exchange Listed Stocks.

Q. How does it work?

Price Bands are established and updated with an upper price (Limit Up) and a lower price (Limit Down) for each stock. Trades and quotes will be prevented from occurring outside the price bands for individual stocks.

Q. How will LULD be activated?

In two separate phases as follows:

Phase I

  • Tier 1 Stocks will be rolled out over a five week period, beginning April 8, 2013
  • Tier 1 Stocks = S&P 500, Russell 1000, select ETFs
  • Price Bands are active from 9:45 – 3:30

Phase II

  • Will be implemented August 5, 2013
  • Applies to all Stocks for the full day of regular trading 9:30 - 4:00
  • Reference prices will be calculated and LULD bands disseminated when the Primary Market opens or at 9:35, whichever comes first

Q.  How are the price bands set?

Price bands will be a fixed percentage around a five-minute rolling average of the consolidated last sale. The fixed percentage is based off the last available closing price (not intra-day) on the primary market as follows:

  • 5 percent when last available closing price is greater than $3.00
  • 20 percent when last available closing price is $0.75 to $3.00
  • Lesser of $0.15 or 75 percent when last available closing price is less than $0.75

NYSE Euronext Roll out schedule:

NYSE and NYSE MKT: On Monday, April 8, 2013, NYSE and NYSE MKT will begin LULD activation of Tier 1 stocks.  The activation of Tier 1 stocks on LULD will be a phased approach, spanning five weeks on the following schedule:

Week 1: ABC, ACE, ACT, ADT, AGO, ALR, AMT, ANF, ANV   (9 stocks)

Week 2: A – AK (25 Tier 1 stocks)

Week 3: AL – CD (90 Tier 1 stocks)

Week 4: CE – L (300 Tier 1 stocks)

Week 5: M – Z (324 Tier 1 stocks)

NYSE ARCA: On Monday, April 8, 2013, NYSE Arca will begin LULD activation of Tier 1 stocks.

The activation of Tier 1 stocks on LULD will be a phased approach, spanning three weeks on the following schedule:

Week 1– XME, XOP, XPH, XRT, XSD, YXI and ZROZ

Week 2– A through BXDB

Week 3– C through XLY