- Trading halts and suspensions can block trades in a security for minutes to a week or more.
- These halts are used to protect investors and ensure that all traders are operating on a level playing field.
- Most investors, with the exception of heavy day traders, likely won’t notice the impact of halts on their ability to buy or sell shares.
Investors are used to a stock market that is fast-paced and highly liquid. For most stocks, you can expect to buy or sell shares within seconds of placing a market order. However, that isn’t always the case.
In some circumstances, the SEC or exchanges can issue a trading halt on some stocks. This prevents investors from trading those shares for minutes, days, or weeks at a time.
Here’s exactly how these halts work and how they might impact your trades.
What is the SEC?
The U.S. Securities and Exchange Commission (SEC) is an independent government agency that was created in the wake of the 1929 stock market crash that ultimately signaled the start of the Great Depression.
This agency is tasked with maintaining fair and efficient markets and uses its powers of regulatory oversight of public companies to do so.
Publicly traded companies file annual reports and other financial information with the SEC. This means that their financial data is available to all investors.
The SEC also enforces rules against things like insider trading and fraud to help protect investors and prevent stock market instability that could impact the economy.
What is a stock halt?
A stock halt or trading halt happens when a stock exchange stops allowing investors to trade shares for a period of time.
For example, if you own shares in company XYZ, you can typically list those shares for sale whenever the markets are open. However, if there is a stock halt on XYZ stock, you have to wait until that halt ends before you can sell the shares on the market.
Alternately, if you want to buy shares of a certain stock but there is a halt, you need to wait until it ends before you can make your purchase.
What triggers a stock halt?
There are different triggers for stock halts. They can generally be divided into regulatory and non-regulatory halts.
Regulatory halts are triggered by specific rules that determine when a halt should occur. For example, when a public company is about to release material news that could impact its stock price, exchanges will pause trading for a few minutes.
This temporary halt gives the company time to release the news and lets investors assess how that news will impact the company’s value.
Exchanges may also pause trading if it is uncertain that the company still meets its listing standards, such as minimum market capitalization.
Typically, if one exchange places a regulatory halt on a security, other exchanges will follow suit.
Non-regulatory halts can happen in other situations that are more subjective. For example, if there is a major imbalance in the number of buy and sell orders for a security, the exchange may temporarily pause trading.
During the halt, the exchange will communicate with investors regarding the stock’s price and when trading will resume. Other exchanges may also pause trading if one exchange puts a non-regulatory halt in place, but this is less common than it is for regulatory halts.
In the world of finance, breakers work much like they do in electrical systems in your house. If something in the market goes wrong or gets overloaded, the circuit breaker kicks in, shuts things down and gives everyone time to figure out what is going on with the market.
These apply to individual stocks as well as entire stock indices and are intended to stop panic selling.
For example, if the S&P 500 moves by 7% or 13% in a single day, a circuit breaker will trigger and halt trading for 15 minutes. A move of 20% pauses trading for the remainder of the day.
The thresholds for individual securities can differ based on the size and value of the company.
Trading suspension vs. stock halt
Trading suspensions and stock halts are two similar concepts, but they are quite different. It’s important to know how they vary.
A stock halt is not necessarily indicative of issues with a company. It can simply indicate that the business is about to release important news.
A trading suspension, however, is imposed by the SEC. This blocks the trading of a stock across all stock exchanges in the United States.
Trading suspensions are only used when the SEC has serious concerns about the availability of information about the company, the accuracy of the information in its public reports, or potential market manipulation.
In short, the SEC uses trading suspensions to protect investors and to give it time to investigate potential fraud. A typical trading suspension lasts for ten days.
Examples of stock halts and trading suspensions
The SEC maintains a website that lists all of its historical trading halts and suspensions.For example, on July 29th of this year, it suspended trading in Viabuilt Ventures, Inc. The suspension came due to “indicia of market manipulation and unusual market activity, including recent buy orders that increased Viabuilt’s stock price by 570% since the security’s last trade approximately six weeks prior.”
An example of a stock halt from Australia occurred when six executives of Sundance Resources Limited, including the CEO and chairman, went missing on a flight over Africa. The company requested that trading of its stock be halted so it could properly disseminate the news.
A recent example of a market halt caused by circuit breakers comes from the beginning of the COVID-19 pandemic. Circuit breakers were triggered on March 9, 12, 16 and 18, 2020.
What investors should know
For investors, the existence of trading halts and suspensions is good news. While it can sound scary that an exchange or the SEC could step in and block you from buying or selling shares, the truth is that these tools are used to protect investors and the market from malicious trading.
Regulatory trading halts give investors time to receive and digest new information about companies rather than trading with other investors who receive information more quickly.
Trading suspensions can help investors avoid falling into traps caused by fraudsters looking to profit from a pump-and-dump scheme or otherwise dupe investors.
For most people, trading halts and suspensions are often unnoticeable. Chances are you won’t have to worry about how they impact your portfolio.
The Bottom Line
Trading halts and suspensions are tools used by stock exchanges and regulators to protect investors from potential fraud.
While there’s a chance they could prevent you from buying or selling shares precisely when you want to, they’re typically unnoticeable and do a good job of protecting investors. One way to limit your risk against these actions, and other forces in the market is to diversify the type of investments you hold.
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