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In coordination with other exchanges and market participants, Direct Edge® will participate in industry–wide testing for Limit Up-Limit Down (LULD) on Saturday, July 13, 2013. Members are encouraged to participate to ensure their systems are prepared for the implementation of Phase 2 of LULD, which is currently scheduled to be effective on Monday, August 5, 2013.
Test Schedule
Exchanges will run through core scenarios outlined below starting at 9:30 a.m., Eastern Time (ET) and continuing until 12:00 p.m., ET. LULD price bands will be in effect from 9:30 a.m. – 11:45 a.m., ET, and double wide bands will be in effect from 9:30 a.m. ET – 10:00 a.m. ET and from 11:35 a.m. – 11:45 a.m. ET.
Anticipated LULD Industry Testing Scenarios
Test 1 – Standard sell and buy executions with double wide bands in effect until 10:00 a.m. (simulating the usual 9:45 a.m.)
- Execute buy and sell orders within the NBBO and LULD Price Bands
- Perform the same test for all three tiers of stocks in Phase 2: >$3, $3 – $0.75, <$0.75
Test 2 – Limit State / No pause – Prior to 10:00 a.m. (simulating the usual 9:45 a.m.); Double wide bands
- Trigger a limit state with an aggressive buy order, cancel or execute the order before 15 seconds have elapsed
- Trigger a limit state with an aggressive sell order, cancel or execute the order before 15 seconds have elapsed
- Perform the same test for all three tiers of stocks in Phase 2: >$3, $3 – $0.75, <$0.75
Test 3 – Limit State / Pause – Prior to 10:00 a.m. (simulating the usual 9:45 a.m.); Double wide bands
- Trigger a limit state with a buy or sell order and allow the order to trigger a trading pause
- Perform the same test for all three tiers of stocks in Phase 2: >$3, $3 – $0.75, <$0.75
Test 4 – Booked Order Following Opening Cross – Bands Start (9:30 a.m.) – Order outside double wide bands
- At 9:30, when the bands become active under Phase 2 following an opening cross, an order is entered and priced outside the double wide bands
- Passive side and aggressive side orders should be tested
- Passive – Depending on Exchange either remains booked (flagged as non-executable) or cancels
- Aggressive – Depending on Exchange either Price slides to band or cancels
Test 5 – Booked Order Before Bands Shrink at 10:00 a.m. (simulating the usual 9:45 a.m.) – Order outside regular bands
- At 10:00 a.m., a previously booked order is priced outside the reduced bands, but inside the previous double wide bands
- Both passive side and aggressive side booked orders should be tested coming into the band change at 10:00 a.m.
- Passive – Depending on Exchange either remains booked (flagged as nonexecutable) or cancels
- Aggressive – Depending on Exchange either Price slides to band or cancels
- Tier 1 and Tier 2 names should both be tested
Test 6 – Order halted during the band change at 10:00 a.m. (simulating the usual 9:45 a.m.)
- Before 10:00 a.m., place an aggressive buy or sell order to cause a limit state and halt
- The stock will remain halted and re-open with the new tighter bands
Test 7 – Booked Order Before Bands Shrink at 10:00 a.m. (simulating the usual 9:45 a.m.) – Order inside regular bands
- At 10:00, a previously booked order is priced inside both the wide and reduced bands.
- Expected behavior is bands reduce and the order remains booked.
Test 8 – Limit State / No pause – Post to 10:00 a.m. (simulating the usual 9:45 a.m.)
- Trigger a limit state with an aggressive buy order, cancel or execute the order before 15 seconds have elapsed
- Trigger a limit state with an aggressive sell order, cancel or execute the order before 15 seconds have elapsed
- Perform the same test for all three tiers of stocks in Phase 2: >$3, $3 – $0.75, <$0.75
Test 9 – Limit State / Pause – Post 10:00 a.m. (simulating the usual 9:45 a.m.)
- Trigger a limit state with a buy or sell order and allow the order to trigger a trading pause
- Perform for all three tiers of stocks in Phase 2: >$3, $3 – $0.75, <$0.75
Test 10 – Multiple Limit States / No pause (regular bands)
- Trigger multiple limit states with aggressive buy and sell orders, but cancel or execute each order prior to triggering a trading pause
- Perform for all three tiers of stocks in Phase 2: >$3, $3 – $0.75, <$0.75
Test 11– Multiple Limit State / Pause (regular bands)
- Trigger multiple limit states and then allow a trading pause to occur
- Perform for all three tiers of stocks in Phase 2: >$3, $3 – $0.75, <$0.75
Test 12 – Straddle / market comes in
- Straddle the lower price band with two orders, and then execute trades near the lower price band to move the reference price so that the buy order becomes executable
- Perform for all three tiers of stocks in Phase 2: >$3, $3 – $0.75, <$0.75
Test 13 – Booked Order Bands go double wide (11:35 a.m. ET for the weekend test) – Order becomes executable
- Before the bands go back to double wide, enter an order that is passively outside of the price bands (the order should be un-executable when entered)
- When the bands widen the order becomes inside the bands and should be executable
Test 14 – Booked Order Bands go to zero (11:45 a.m. ET for the weekend test)
- Before the bands go back to zero a previously un-executable order is booked and upon the bands going to zero becomes executable
Note: All Exchanges plan to run these types of core scenarios during the testing day along with other internal tests that might be more specific to each Exchange. Additionally, we encourage all testing participants to also attempt to run these types of scenarios in the non-reserved tickers open for testing in order to ensure that expected results are encountered.
