Low-Volume Securities out of LULD, for Now

NYSE to remove lightly traded securities from LULD system, review how to reincorporate them with lower chance that a wide bid-ask spread will halt trading.

NYSE Euronext plans to reevaluate a program aimed at curbing sudden price swings after about 40 thinly traded securities set off trading halts last week.

NYSE said it will work to refine the system, known as limit up/limit down (LULD), after it briefly stopped trading in some securities only because they had a wide bid-ask spread, according to a release from its Arca unit today. About 530 securities that move 10,000 shares or less per day on average will be removed from the program and return to the old system of circuit breakers.

“NYSE Arca will work with the SEC and other markets to identify the best methodology for incorporating low-volume derivative securities into the LULD plan,” Katrina Clay, an NYSE spokeswoman, wrote in an e-mail.

Regulators have sought ways of reducing swings in securities since the May 2010 flash crash that briefly sent the Dow Jones Industrial Average down almost 1,000 points. The new system was in its second phase of implementation when about 40 exchange-traded funds (ETFs) and notes were halted at the open on Aug. 19.

Under the limit up/limit down system, trades aren’t allowed to take place more than a specified percentage above or below the average price over the preceding five-minute period. If prices don’t move away from the specified limits within 15 seconds, the listing market declares a trading pause of five minutes.

The circuit breaker method stopped trading for five minutes when the price of a stock or ETF moved 10 percent in five minutes.

The securities with low trading volume will be removed from the program on Aug. 28 and reintroduced by Dec. 8, according to the release today. NYSE began adding the securities to the plan on Aug. 5.

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