The Effect of Amendment 10 of the “Limit Up-Limit Down” Pilot Plan
Dec. 21, 2017
This paper analyzes the effect of Amendment 10 to the Limit Up-Limit Down (LULD) Plan on trading pauses. To reduce the number of unnecessary trading pauses, the Amendment changed the determination of a security’s first reference price when the security does not trade in an opening auction. The paper finds that the frequency of trading pauses decreased by more than 75% after Amendment 10 went into effect. The decrease in the frequency of trading pauses was largest for Tier 2 securities, relative to Tier 1 securities (the latter generally have a larger market capitalization), and also larger in the first 30 minutes after the opening of the trading day.