SEC Approves "Limit Up-Limit Down" Plan Amendment to Prevent Trading Pauses and Extend Pilot Period

The SEC approved an amendment to the National Market System Plan to Address Extraordinary Market Volatility, which is commonly referred to as the "limit up-limit down" plan ("LULD plan"). The amendment will extend the pilot period of the LULD plan from April 22, 2016 to April 21, 2017, and amend the definition of "Opening Price" in order to prevent trading pauses under the LULD plan that are not indicative of extraordinary volatility. Specifically, the amendment modifies the LULD plan to conform the "Opening Price," for stocks that are uninvolved in opening transactions, to the primary listing exchange's previous-day's closing price or, if no such closing price exists, to that of the last reported sale on the primary listing exchange. Prior to the amendment, the "Opening Price" for stocks with no opening transaction was the midpoint of the opening bid and ask on the primary listing exchange.

The "Opening Price" is used under the LULD plan to determine the first reference price of the day for stocks. Data gathered by the parties to the LULD plan suggests that the majority of trading pauses effected under the plan could have been avoided if the previous day's closing price had been used.