LULD and Market-Wide Circuit Breakers

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:

• Each stock has a 5-minute trailing reference price (a moving average of recent trades)
• Around the reference price, price bands define the acceptable trading range
• If trading reaches the upper or lower band edge, trading is restricted to within the band
• If the stock cannot trade back inside the band within 15 seconds, a 5-minute trading pause is triggered
• Trading resumes via a reopening auction at the primary listing market

LULD Bands by Tier and Time

The wider bands at the open and close acknowledge that volatility is naturally higher in those windows. The wider bands for low-priced stocks reflect the larger percentage moves common in penny-priced names.

LULD Mechanics in Sequence

Think of it this way: LULD is the market's anti-fat-finger and anti-cascade mechanism. A 5% move in two minutes is not impossible; it just must happen in two minutes, not in two seconds. The 15-second test gives the market a chance to find natural buyers or sellers at the band edge before forcing a pause.

Exam Tip: Gotchas

• LULD bands DOUBLE during the first 25 minutes (9:30-9:45 a.m. ET) and last 25 minutes (3:35-4:00 p.m. ET) of trading for Tier 1. For Tier 2 stocks priced at or below $3.00, the bands are doubled throughout the day.
• The pause is 5 MINUTES, but only triggers if the stock cannot trade back inside the band within 15 SECONDS. The 15-second test is what triggers the pause; the 5-minute halt is the consequence.
• 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:

• News pending halts on OTC equities (FINRA OTC market center halt rules)
• 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 suspends trading entirely; quotes and trades cannot occur. This is broader than a LULD pause (which restricts pricing) and requires a coordinated reopening.

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.

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.

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:

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.