What is Suspended Trading?
Suspended trading occurs when the U.S. Securities and Exchange Commission (SEC) intervenes in the market to halt trading activity due to serious concerns about a company's assets, operations, or other financial information.
- Suspended trading occurs when the SEC intervenes in the market to halt trading activity due to serious concerns about a company's assets, operations, or other financial information.
- The SEC has the authority to suspend the trading of a security for up to ten trading days to protect investors under Section 12(k) of the Securities Exchange Act of 1934.
- The SEC cannot forewarn investors about an upcoming suspension as a premature announcement would have an unfair negative impact on existing investors.
Understanding Suspended Trading
The SEC has the authority to suspend the trading of a security for up to ten trading days to protect investors under Section 12(k) of the Securities Exchange Act of 1934. The SEC will make the decision to do this based on an investigation and will then issue a press release detailing the reason for the suspension. During the ten day period, the SEC will not comment publicly on the status of the investigation. Once trading in a security is suspended, shares cannot trade until the suspension is lifted or lapses. The suspension time is determined on a case-by-case basis.
Suspended trading occurs for many different reasons, including:
- A lack of current, accurate, or adequate information about a company, such as when it's not current in its filing of periodic reports.
- Questions about the accuracy of publicly available information, including the contents of recent press releases.
- Concerns about trading in the stock, such as insider trading or market manipulation.
The most common reason for a suspension is the lack of current or accurate financial information. In many cases, companies can resolve the issue by submitting the required financial statements to go back into compliance. Less common cases could involve instances of fraud where a company could see a longer-term impact from a trading suspension.
The SEC cannot forewarn investors about an upcoming suspension to protect the integrity of the investigation. If the suspension didn't end up occurring, a premature announcement would have had an unfair negative impact on existing investors.
Securities trading on national exchanges, such as the NYSE or NASDAQ, can immediately resume trading when a suspension is lifted. When it comes to over-the-counter securities, broker-dealers cannot solicit investors to buy or sell previously-suspended securities until certain requirements are met, but unsolicited trading is permitted.
In particular, broker-dealers must fill out Form 211 with FINRA representing that they have satisfied all applicable requirements of Rule 15c2-11 and FINRA Rule 6432. These rules make sure that broker-dealers have reason to believe that its financial statements and other documents are accurate.
Often times, the price of securities move sharply lower following a suspension since there may be a lack of confidence in management. The price may quickly recover, however, if the issues are deemed to have been resolved.
Examples of Suspended Trading
There are several instances of suspended trading in recent history. Perhaps the most famous such case was the Enron scandal that came to light in 2001. The company's stock price crashed and was trading in pennies in a couple of days. Enron subsequently filed for bankruptcy later that year and NYSE suspended trading in its shares the following year citing the stock's share price of below $1 in violation of its Big Board standards as the reason for the suspension.
More recently, NYSE suspended trading in some NASDAQ-listed shares, like Alphabet (GOOG) and Amazon (AMZN), for less than a day, after a technical glitch resulted in traders receiving trade execution reports in an unusual manner.