Trading Halt

What Is a Trading Halt?

A trading halt is a transitory suspension of trading for a specific security or securities at one exchange or across various exchanges. Trading can be halted in anticipation of a news announcement, to address an order imbalance, because of a technical error, due to regulatory worries or in light of the fact that the price of the security or an index has moved quickly to the point of triggering a halt in view of exchange rules. While a trading halt is in effect, open orders might be canceled and options actually might be exercised.

Trading halts are not quite the same as a trading suspension ordered by the Securities and Exchange Commission (SEC). Under U.S. securities law, the SEC might suspend public trading in any stock for as long as 10 days to safeguard investors and the public interest.

How a Trading Halt Works

A trading halt can be regulatory or non-regulatory. Regulatory halts are those applied when there is question the security keeps on fulfilling listing guidelines to give market participants time to survey important news, as in the event of a U.S. Food and Drug Administration decision on another medication application, for instance.

A trading halt guarantees wide access to the news prone to move the price and prevents the individuals who receive it first from benefitting from others late to the data. Other material developments that might warrant a regulatory trading halt incorporate corporate acquisitions and restructurings, regulatory or legal decisions or changes in management.

A regulatory trading halt in a security by its primary U.S. exchange is respected by other U.S. exchanges.

A non-regulatory trading halt can happen on the New York Stock Exchange (NYSE) (yet not the Nasdaq) to address a large imbalance among buy and sell orders. Such trading halts ordinarily last something like a couple of moments until order balance is reestablished, and the trading resumes.

Companies will frequently hold on until the market closes to release sensitive data to the public, to give investors time to assess the data and decide if it is critical. This practice, notwithstanding, can lead to a large imbalance between buy orders and sell orders in the lead-up to the market opening. In such an occasion, a exchange may choose to institute an opening postponement, or a trading halt, promptly at the market opening. These deferrals are for the most part in effect for something like a couple of moments while the balance between buy orders and sell orders is reestablished.

A much U.S. securities law likewise gives the Securities and Exchange Commission (SEC) the power to impose a suspension of trading in any publicly traded stock for as long as 10 days. The SEC will utilize this power on the off chance that it accepts that the investing public is put a risk by kept trading of the stock. Normally, it will exercise this power when a publicly traded company has failed to file periodic reports like quarterly or annual financial statements.

Circuit Breaker Trading Halts

U.S. securities exchanges have standing rules for expansive trading halts in occasions were sensational price declines compromise market liquidity. Cumulative declines of 7% and 13% from the prior's day closing level in the &P 500 index trigger a brief expansive trading halt on the off chance that they happen before 3:25 p.m. ET. A 20% decline in the S&P 500 from the prior's day close halts the stock market until the end of the trading day regardless of when it works out.

Circuit breakers can likewise apply to trading in any stock under U.S. trading rules. For stocks priced above $3 and remembered for the S&P 500 or the Russell 1000 indices, as well as certain exchange-traded products like ETFs, trading is halted for five minutes after sudden moves of over 5% and lasting over 15 seconds- - up or down- - from the average price over the prior 5 minutes. For different stocks priced above $3 the sudden price move required for a trading halt is 10%, while those priced somewhere in the range of $0.75 and $3 are halted after a sudden gain or loss of 20% or more.

Features

• Trading halts are commonly applied ahead of a news announcement, to address an order imbalance, or because of a large and unexpected change in the share price.
• A trading halt is a short stoppage in trading for a specific security or securities at one exchange or across various exchanges.
• Extensive halts may likewise be triggered by extreme intraday declines in the S&P 500 index under what are called circuit breaker rules.