Limit Up-Limit Down: Price Bands, Pauses, and Exemptions

Limit Up-Limit Down, usually shortened to LULD, is a market-wide rule that prevents an individual stock from trading outside a calculated price range during regular hours. It works by drawing a percentage band above and below a rolling reference price for each security, blocking executions outside those boundaries, and pausing trading when quotes get pinned at the edge. The result is a stock-by-stock speed bump that catches runaway moves before they turn into bad prints.

The plan became a permanent part of the national market system in April 2019 after running as a pilot approved by the SEC in 2012 in response to the 2010 Flash Crash.¹

How the Price Bands Are Set

Every band starts from a reference price. During continuous trading, that reference price is the arithmetic mean of eligible reported transactions over the preceding five minutes, as reported to the consolidated tape.¹ In the first five minutes of the session (9:30 to 9:35 a.m. ET), five minutes of data don’t exist yet, so the reference price comes from the opening auction price on the primary listing exchange or the midpoint of the primary exchange’s quoted spread. If the opening auction produces no volume, the previous day’s close is used.²

Once the reference price is set, the system applies a percentage above and below to create the upper and lower bands. The percentage depends on which tier the security belongs to and on its price level.

Tiers

Tier 1 includes stocks in the S&P 500, the Russell 1000, and certain exchange-traded products. Tier 2 covers all remaining NMS stocks. Rights and warrants are excluded entirely.¹

Percentage Parameters

For stocks priced above $3.00, Tier 1 uses 5% bands and Tier 2 uses 10%. Below that threshold, both tiers use wider percentages because small dollar moves translate into large percentage moves on low-priced stocks:³

Above $3.00: 5% for Tier 1, 10% for Tier 2
$0.75 to $3.00: 20% for both tiers
Below $0.75: the lesser of $0.15 or 75% for both tiers

Leveraged exchange-traded products in Tier 2 get a further adjustment. Their percentage parameter is multiplied by the fund’s leverage ratio, so a 2x leveraged ETF priced above $3.00 would carry 20% bands instead of the standard 10%.³

Wider Bands Near the Close

The percentages above apply from 9:30 a.m. to 3:35 p.m. ET for Tier 1 securities and for Tier 2 securities below $3.00. During the final 25 minutes of regular trading (3:35 to 4:00 p.m.), those bands double. A Tier 1 stock above $3.00, for example, moves from 5% bands to 10% bands. Tier 2 securities priced above $3.00 are the exception: their 10% bands apply for the full session with no end-of-day doubling.¹

What Happens When a Stock Hits the Band

A security enters a limit state when the National Best Offer equals the lower price band or the National Best Bid equals the upper price band. In plain terms, the best quoted price to buy or sell is pinned right at the edge of the allowed range. A 15-second clock starts at that moment. If all the limit state quotations are executed or canceled within those 15 seconds, the limit state ends and continuous trading resumes.¹

Most limit states resolve on their own in that window. The clock is short enough not to freeze the market but long enough for liquidity providers to step in. Trouble starts when the quotes don’t clear.

Five-Minute Trading Pauses

If the limit state is not resolved within 15 seconds, the primary listing exchange declares a five-minute trading pause.¹ The halt applies across every exchange and off-exchange venue in the national market system. No executions happen anywhere in that security for the duration of the pause.

Open orders are not wiped out. On Nasdaq, resting orders stay on the book unless the customer cancels them, and new orders can still be submitted during the pause.² That matters if you placed a market order right before the halt: nothing will fill until trading resumes, so the pause is your window to cancel or reprice.

Reopening Auction

When the five minutes end, the primary listing exchange runs a reopening auction. Buy and sell orders at various price levels are matched to find a single clearing price, and that price becomes the new reference price for freshly calculated bands.¹

Sometimes the order imbalance is too large to produce a viable price. In that case the primary listing exchange can extend the pause in additional five-minute increments until an orderly reopening is possible.¹ That prevents the stock from reopening straight into another limit state.

Pauses Near the Close

A different rule applies late in the day. If a security is still in a trading pause during the last 10 minutes of regular trading hours (3:50 to 4:00 p.m. ET), the primary listing exchange will not attempt to reopen trading. It instead tries to execute a closing transaction using its standard closing auction procedures.¹ A position caught in a halt that late won’t trade again until the next session.

When LULD Does Not Apply

LULD runs only during regular trading hours, 9:30 a.m. to 4:00 p.m. ET.¹ Pre-market and after-hours sessions have no price band protection, which is one reason extended-hours trading carries additional risk. A stock that closed calmly at 4:00 p.m. can gap significantly before the next open without any LULD intervention.

The plan covers NMS stocks, meaning exchange-listed equities and exchange-traded products. Rights and warrants are specifically excluded.¹ Over-the-counter securities that don’t trade on a national exchange are also outside the plan’s scope, so OTC and non-NMS penny stocks receive no LULD safety net.

LULD Versus Market-Wide Circuit Breakers

LULD acts on a single security. A separate system, the market-wide circuit breaker (MWCB), halts trading across every exchange when the S&P 500 index drops sharply from the previous day’s close. The two mechanisms work at different scales.

Market-wide circuit breakers are triggered at three levels:⁴

Level 1, a 7% decline: trading halts for at least 15 minutes if triggered between 9:30 a.m. and 3:25 p.m. ET.
Level 2, a 13% decline: trading halts for at least 15 minutes if triggered between 9:30 a.m. and 3:25 p.m. ET.
Level 3, a 20% decline: trading halts for the remainder of the day, regardless of when it’s triggered.

Level 1 and Level 2 can each be triggered only once per day. The conceptual difference between the two systems is that LULD is quote-based, catching problematic quotes before they execute, while the Single-Stock Circuit Breaker system it replaced was trade-based and only reacted after bad trades had already printed.⁵ LULD is preventive; the earlier system was reactive.

1
Limit Up-Limit Down. Limit Up-Limit Down (LULD) Plan
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Nasdaq Trader. Limit Up-Limit Down Frequently Asked Questions
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U.S. Securities and Exchange Commission. Order on the Twenty-Third Amendment to the National Market System Plan to Address Extraordinary Market Volatility
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New York Stock Exchange. Market-Wide Circuit Breakers FAQ
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U.S. Securities and Exchange Commission. Limit Up-Limit Down Pilot Plan and Extraordinary Transitory Volatility