Trading Halt

What Is a Trading Halt?

A trading halt is a temporary suspension of trading for a particular security or securities at one exchange or across numerous exchanges. Trading halts are typically enacted in anticipation of a news announcement, to correct an order imbalance, as a result of a technical glitch, or due to regulatory concerns. When a trading halt is in effect, open orders may be canceled and options still may be exercised.

How a Trading Halt Works

A trading halt is most often instituted in anticipation of an announcement of news that will affect a stock’s price greatly, whether the news is positive or negative. There are thousands of stocks traded each day on public exchanges such as the New York Stock Exchange (NYSE) or the Nasdaq, and each of these companies agrees to pass on material information to the exchanges prior to announcing it to the general public.

To promote the equal dissemination of information, and fair trading based on that information, these exchanges may decide to halt trading temporarily, before such information is released. Material developments that warrant a trading halt can include changes that relate to a company’s financial stability, important transactions like restructurings or mergers, public announcements related to a company’s products like a recall, personnel changes to upper management, or regulatory or legal announcements that affect the company’s ability to conduct business.

Trade resumption refers to the commencement of trading activities after they have been shut down or halted for some period of time.

Trading Halts at Market Open

Companies will often wait until the market closes to release sensitive information to the public, to give investors time to evaluate the information and determine whether it is significant. This practice, however, can lead to a large imbalance between buy orders and sell orders in the lead-up to the market opening. In such an instance, an exchange may decide to institute an opening delay, or a trading halt immediately at the market opening. These delays are usually in effect for no more than a few minutes, until balance between buy orders and sell orders can be restored.

If the halt occurs before the official open of trading, then it is called held at open. There are three main reasons why a stock is held at the opening: New information is expected to be released by a company that may have considerable impact on its stock price; there is an imbalance between buy orders and sell orders in the market; or a stock does not meet regulatory listing requirements. Trading delays are trading halts that occur at the beginning of the trading day. Traders can find trading halt and delay information on an exchange’s website.

U.S. securities law also grants the Securities and Exchange Commission (SEC) the power to impose a suspension of trading in any publicly traded stock for up to 10 days. The SEC will use this power if it believes that the investing public is put a risk by continued trading of the stock. Typically, it will exercise this power when a publicly traded company has failed to file periodic reports like quarterly or annual financial statements.

Exchange Circuit Breakers

Stock exchanges can also take measures to ease panic selling by invoking Rule 48 and halting trading when markets have severe downward movements. Under 2012 rules, market-wide circuit breakers (or “curbs”) kick in when the Standard & Poor’s (S&P) 500 index drops 7% for Level 1; 13% for Level 2; and 20% for Level 3 from the prior day’s close. A market decline that triggers a Level 1 or Level 2 circuit breaker before 3:25 p.m. Eastern time will halt trading for 15 minutes, but will not halt trading at or after 3:25 p.m.

Circuit breakers can also be imposed on single stocks as opposed to the whole market. Under current rules, a trading halt on an individual security is placed into effect if there is a 10% change in value of a security that is a member of the S&P 500 Index, Russell 1000 Index, or QQQ ETF (exchange-traded fund) within a five-minute time frame, a 30% change in value of a security whose price is equal or greater than $1 per share, or a 50% change in value of a security whose price is less than $1 per share.