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.
BREAKING DOWN Trading Halt
A trading halt is most often instituted in anticipation of an announcement of news that will affect a stock’s price greatly, whether it be positive news or negative news. 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.
In order 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.
Trading Halts at Market Open
Companies will often wait until the market closes to release sensitive information to the public, in order to give investors time to evaluate the information and determine whether it is significant. This practice, however, can lead to there being a large imbalance between buy and sell orders in the lead up to the market open. In such an instance, an exchange may decide to institute a an opening delay, or a trading halt immediately at the market open. These delays are usually in effect for no more than a few minutes, until balance between buy and sell orders can be restored.
United States 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 ten days. The SEC will use this power if it believes that the investing public is put a risk by a 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.