Quick Answer
A LULD Limit State unresolved for 15 seconds ordinarily triggers a 5-minute pause. Above a $3 previous close, standard bands are 5% for Tier 1 and 10% for Tier 2. Market-wide circuit breakers use S&P 500 declines of 7%, 13%, and 20%. Halts bar ordinary quoting and trading; permitted reopening procedures remain available.
Modern markets have automated speed bumps that pause trading when prices move too fast. The Series 24 supervisor must understand both the single-stock mechanism (LULD) and the market-wide mechanism (MWCB), and the halt-trading prohibition that applies during any halt.
Single-Stock LULD (Reg NMS Plan)
The Limit Up-Limit Down plan applies to all NMS stocks. The mechanism:
- The reference price is based on the arithmetic mean of eligible trades over the preceding five minutes. After 30 seconds, it updates only if the new mean differs by at least 1%; without eligible trades, the prior reference remains
- Around the reference price, price bands define the acceptable trading range
- A Limit State occurs when the national best offer equals the lower band or the national best bid equals the upper band
- The state ends if all quotations creating it are executed or canceled entirely within 15 seconds; otherwise a 5-minute trading pause ordinarily follows, with extension and late-day reopening provisions
- Trading resumes via a reopening auction at the primary listing market
LULD Bands by Tier and Time
| Tier | Standard Band | Doubled Band Conditions |
|---|---|---|
| Tier 1 (S&P 500, Russell 1000, certain ETPs), previous close above $3 | 5% | Doubles to 10% only during the last 25 minutes (3:35-4:00 p.m. ET); no opening-period doubling |
| Tier 2 (all other NMS stocks priced above $3.00) | 10% | No doubling - the 10% band stays in place all session; only Tier 1 stocks and stocks priced under $3.00 double in the last 25 minutes |
| Previous close from $0.75 through $3.00 | 20% | Applicable late-day doubling under the plan |
| Previous close below $0.75 | Lesser of $0.15 or 75% | Applicable late-day doubling under the plan |
There is no opening-period doubling. Low-priced stocks have their own base bands; they are not simply assigned the ordinary Tier 1 or Tier 2 percentage.
LULD Mechanics in Sequence
| Step | Action |
|---|---|
| 1 | Stock approaches the price band edge |
| 2 | Trading is restricted to within the band (no trades outside) |
| 3 | If all Limit State quotations are executed or canceled entirely within 15 seconds, the state ends |
| 4 | If the Limit State remains after 15 seconds, a 5-minute pause ordinarily follows |
| 5 | Trading reopens via an auction at the primary listing market |
The 15-second test concerns the Limit State quotations, not the speed of every price move. One trade inside the band does not end the state if quotations creating it remain.
Exam Tip: Gotchas
- LULD bands double only during the last 25 minutes (3:35-4:00 p.m. ET) for Tier 1 and for stocks priced under $3.00. There is no opening / first-25-minutes doubling. Do not confuse this with the separate Nasdaq/NYSE Designated-Percentage quote-obligation widening at the open and close, which is a different rule.
- An unresolved Limit State for 15 seconds ordinarily triggers a 5-minute pause. Extensions and special late-day reopening procedures can change the duration.
- The reopening auction happens at the PRIMARY LISTING MARKET, not at the venue where the pause occurred. A LULD pause on Cboe BZX in an NYSE-listed stock reopens at NYSE.
Trading Halts
In addition to LULD pauses, FINRA may impose a trading halt in three circumstances:
- Halts in OTC equity securities for a regulatory event, a foreign-market halt in the security's home market, or a derivative/component-security or extraordinary-event trigger (FINRA does not impose a "news pending" halt on OTC equities; news-pending halts are a listing-market function for exchange-listed stocks)
- Halts triggered by an exchange or SRO halt for an exchange-listed security (FINRA matches the listing market's halt)
- Halts to comply with the Reg NMS Plan to Address Extraordinary Market Volatility
A trading halt and a LULD trading pause suspend ordinary trading. Distinguish the preceding Limit State, during which permitted executions within the bands may still occur, from the pause itself. Reopening auctions follow the applicable market procedures.
Market-Wide Circuit Breakers (MWCB)
When the S&P 500 drops materially intraday, the entire equity market halts. The trigger thresholds are calculated from the prior day's closing S&P 500 price.
| Level | S&P 500 Drop | Action | Time Restriction |
|---|---|---|---|
| Level 1 | 7% | 15-minute market-wide halt | Only triggers before 3:25 p.m. ET |
| Level 2 | 13% | 15-minute market-wide halt | Only triggers before 3:25 p.m. ET |
| Level 3 | 20% | Halt for the remainder of the trading day | Triggers any time |
Levels 1 and 2 trigger only once per day (a second 7% drop after the Level 1 halt does not trigger another Level 1 halt; the next breach is Level 2 at 13%). Level 3 ends trading for the day.
The 3:25 p.m. ET cutoff is critical: a Level 1 or Level 2 trigger at or after 3:25 p.m. does NOT halt trading. The market is allowed to run the close uninterrupted in the final 35 minutes. Only Level 3 still halts trading late in the day.
3:25 p.m. ET Cutoff Rationale
The closing 35 minutes of the trading day include the closing auction, where institutional rebalancing, index funds, and end-of-day positions concentrate. Halting late in the day would orphan customer orders that depend on a closing print. Level 3 (a 20% drop) is severe enough to override that concern, but Levels 1 and 2 are not.
Exam Tip: Gotchas
- A Level 1 or Level 2 MWCB AT OR AFTER 3:25 p.m. ET does NOT halt trading. The market lets the close run. Only Level 3 (a 20% drop) still halts trading late in the day.
- MWCB trigger percentages are calculated from the PRIOR DAY's closing S&P 500 price, not the open. The reference point is set the night before, not at the start of trading.
- Levels 1 and 2 trigger only ONCE per day each. A second 7% drop after a Level 1 halt does not trigger another Level 1; the next halt is Level 2 at 13%.
- Level 3 ENDS trading; it is not a 15-minute halt. Once Level 3 triggers, the market is closed for the rest of the day.
The Halt-Trading Prohibition
During a trading halt (whether SRO-imposed or FINRA-imposed), members may NOT publish:
- Quotations in the halted security
- Indications of interest (IOIs)
- Transactions (other than reporting trades that occurred before the halt)
The prohibition extends to all forms of communication that would imply trading availability. The rule applies whether the halt is on a single security (news halt, LULD pause that escalated, listing market halt) or market-wide (MWCB).
A member that quotes during a halt has violated the halt-trading prohibition even if no trade occurs. The act of publishing the quote is the violation.
A stub quote without genuine trading interest is improper even when no halt is in effect: published bids and offers must be bona fide. Calling a remote bid "non-actionable" does not excuse it. A halt adds a separate restriction on quoting; it is not what makes a non-bona-fide stub improper. Permitted reopening procedures do not authorize fictitious quotes.
Exam Tip: Gotchas
- The halt-trading prohibition bars quotations, IOIs, AND transactions during a halt. All three are barred. A firm cannot post a quote, broadcast an IOI, or execute a trade.
- Reporting a pre-halt trade is permitted; entering a new trade is not. The exception is narrow.
- The halt-trading prohibition applies whether the halt is SRO-imposed OR FINRA-imposed. A firm cannot avoid the prohibition by claiming it did not see the FINRA notice; the duty is to monitor halt status.
How LULD, MWCB, and Halts Connect
The three mechanisms work in layers:
| Scope | Mechanism | Source |
|---|---|---|
| Single security (intraday volatility) | LULD ordinarily pauses after a Limit State remains for 15 seconds | Reg NMS Plan |
| Single security (news, regulatory) | Trading halt (no time limit; resumes when news disclosed) | FINRA trading halt rules; OTC equity halts |
| Whole market (S&P 500 decline) | MWCB Level 1, 2, or 3 | Reg NMS Plan to Address Extraordinary Market Volatility |
| All halts | No quotes, IOIs, or trades | The halt-trading prohibition |
A principal supervising trading must:
- Monitor LULD pauses on the firm's positions (especially market-making books)
- Halt trading desks when MWCB triggers
- Enforce the halt-trading prohibition across all members during any halt
- Document compliance with halt notices
Exam Tip: Gotchas
- LULD is single-stock; MWCB is market-wide. They operate at different scales. LULD does not halt the market; MWCB does.
- All halts trigger the halt-trading prohibition. Whether the halt is LULD, news-based, listing-market-based, or MWCB, members may not quote, IOI, or trade.
What Should You Check on Exam Day?
- Do you know the 15-second test that triggers a 5-minute LULD pause, and that Tier 1 bands double only in the last 25 minutes?
- Can you state the three MWCB thresholds, 7%, 13%, 20%, and why Levels 1 and 2 do not halt trading after 3:25 p.m. ET?
- Do you know that Levels 1 and 2 trigger only once per day, while Level 3 halts trading for the rest of the day?
- Can you state what the halt-trading prohibition bars during any halt: quotations, indications of interest, and new transactions?