Thousands of stocks are quoted and traded every day in U.S. securities markets. Trading in most stocks takes place without interruption throughout the day—but sometimes a stock may be subject to a short-term trading halt, trading delay or longer-term trading suspensions.
Stocks in U.S. markets can be halted or can experience a trading delay or suspension for a variety of reasons. In the case of trading halts and delays for listed stocks (stocks that are listed on an exchange), most times the objective is simple: to allow the market to digest new company information. In the case of trading suspensions, often the aim is to protect investors.
Trading Halts
Atrading halt typically lasts less than an hour (but can be longer) and is called during the trading day to allow a company to "announce important news or where there is a significant order imbalance between buyers and sellers in a security."
Companies listed on a U.S. stock exchange, like the NYSE or Nasdaq, are responsible for notifying the listing exchange about any corporate developments that might affect trading in its stock—and it must do so before announcing the news to the public. These developments can include:
- changes related to the financial health of the company;
- major corporate transactions like restructurings or mergers;
- significant positive or negative information about its products;
- changes in key management individuals; or
- legal or regulatory developments that affect the company’s ability to conduct business.
The listing exchange then has the authority to halt trading based on its evaluation of a given announcement. Generally, the more likely the announcement is to affect the stock price—positively or negatively—the more likely the exchange is to call for a trading halt pending dissemination of the news by the company.
An exchange can also halt trading after news affecting the company has been released. This might happen when the company releases information without notifying the exchange in advance, or when another company announces an unsolicited tender offer for the company whose stock is now subject to the trading halt.
These temporary trading interruptions—also known as regulatory halts—tend to be relatively short and are designed to allow prompt and full dissemination of the news to the marketplace at large.
In very rare instances, an exchange may choose to impose a regulatory trading halt when, regardless of the timing of any announcement, a high-impact event outside the company’s control occurs, such as an unforeseen natural disaster or a significant market disruption that can affect trading in a stock. Information about current and past trading halts for exchange-listed stocks is available on the website where the stock is listed. For example, see information about trading halts in Nasdaq-listed stocks.
For over-the-counter (OTC) equity securities, which are generally stocks that are not listed on an exchange, FINRA issues trading and quotation halts under certain circ*mstances. For example, FINRA may impose a halt if a stock is listed on a foreign securities exchange and that exchange halts trading in the stock for regulatory reasons, typically due to public interest concerns or for a pending news announcement. In addition, FINRA may halt trading and quotation in an OTC stock if the OTC stock is a derivative or component of a stock listed on a U.S. or foreign exchange and such exchange imposes a trading halt in the listed stock.
FINRA also may halt trading and quotation if it determines that an extraordinary event has occurred or is ongoing that has had a material effect on the market for the OTC stock or may cause major disruption to the marketplace or significant uncertainty in the settlement and clearance process. Check FINRA’s daily list of trading halts in OTC stocks.
What Happens During a Trading Halt?
When a trading halt is implemented for a listed stock, the listing exchange notifies the market that trading is not allowed in that stock for the duration of the halt. All other U.S. markets trading the stock must observe the trading halt as well, including trading that occurs off-exchange in the OTC market. While the halt is in effect, brokerage firms are prohibited from publishing quotations or indications of interest and from trading the stock. The listing exchange will end the trading halt by taking the steps required by its individual rules. In general, the public is made aware that a trading halt is ending at the same time the halt ends or a few minutes before.
The process is similar for OTC stock trading halts. FINRA disseminates a notice of the halt to the marketplace. At that time, broker-dealers may not quote or trade the security until FINRA gives notice that the halt is no longer in effect, or until 10 business days have passed, unless FINRA determines to continue the halt for longer than 10 days.
Trading Delays
Trading delays often come at the beginning of the trading day, at the market open. Typically, companies make material news announcements when the market is closed between 4 p.m. and 9:30 a.m. Eastern Time. That window allows investors time to evaluate the significance of the news and place orders at prices they deem appropriate. In some instances, this investor reaction can result in an imbalance between the buy and sell orders at the opening of the next trading day. If that happens, an exchange might delay the opening of trading in a particular stock to allow orders to come in to correct the imbalance.
These opening delays for a particular stock—also known as operational or non-regulatory trading halts—are usually short-lived since the exchange is focused on ensuring an orderly and prompt open for all stocks.
Trading Suspensions
The Securities and Exchange Commisssion (SEC) is authorized under federal law to suspend trading in any stock for a period of up to 10 business days when it believes that the investing public may be at risk.
A number of things can lead to an SEC trading suspension. One big one is if a company fails to keep up with SEC reporting requirements, such as missing the filing deadlines for required periodic reports about the company—usually required on an annual and quarterly basis. These reports provide the public with information about the company’s business, corporate outlook and financial performance to date. The quality of this publicly available information can also be a factor in declaring a trading suspension, particularly if it appears to be inaccurate.
Another possible reason for a suspension is the trading activity in a stock. SEC staff can evaluate who is actively trading a stock and suspend trading if it looks like manipulation may be taking place.
Once the SEC decides to suspend trading in a stock, it will issue an order of suspension and announce the reason(s) for its decision and the dates that the suspension is in force. If the reason is a lack of current information, the SEC will state when the company last filed public reports. This information provides an indication of how long it has been since a company updated its publicly available information. Current and past trading suspensions are available from the SEC.
Historically, most companies subject to trading suspensions by the SEC are those that trade in the OTC market—and most suspensions are based on a lack of current information about the company.
The SEC’s ability to keep a trading suspension in place indefinitely is strictly limited. As a result, the lifting of a trading suspension does not mean that the SEC’s concerns have been addressed and no longer apply. Investors should proceed cautiously before purchasing a stock after an SEC trading suspension has ended. If you're considering this move, here are four tips to consider:
- Find out from the brokerage firm quoting the stock what information it has on the company and how recent that information is, bearing in mind that the SEC’s reasons for imposing a trading suspension typically involve a lack of current, reliable information.
- Look for information on your own and evaluate what you find and its source carefully.
- Understand that there may be an illiquid market for some of these stocks, and that finding a buyer might be difficult if you decide to sell.
- Use extreme caution if anyone is recommending that you purchase the stock without offering current information about the company.
Individual securities and the market as a whole may be subject to trading halts during periods of extreme volatility. Learn more about single-stock and market-wide trading halts due to volatility.
