Businesswoman Stopping Dominoes From Falling

When the Trading Stops—Part 2: Delays and Suspensions

Stock trading in U.S. markets usually proceeds smoothly throughout the trading day, but interruptions can occur, as we learned in the first part of our series on trading halts.

In this article, we’ll look at a two other scenarios that can cause trading in a particular company to stop—trading delays and suspensions—and how they work.

Trading Delays at the Market Open

Trading delays often come at the beginning of the trading day, at the market open. There’s a good reason for this. Typically, companies make material news announcements when the market is closed between 4 p.m. and 9:30 a.m. ET. 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.

SEC Trading Suspensions to Protect Investors

The Securities and Exchange Commission (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, 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 on the SEC’s website.

Historically, most companies subject to trading suspensions by the SEC are those that trade in the over-the-counter, or OTC, marketplace—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 need to proceed cautiously before purchasing a stock after an SEC trading suspension has ended. If you are considering this move, here are four tips to consider:

  1. Ask the broker 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.
  2. Look for information on your own, and evaluate carefully whatever you find and its source.
  3. Understand that there may be an illiquid market for some of these stocks, and that finding a buyer may be difficult if you decide to sell.
  4. Use extreme caution if anyone is recommending you purchase the stock without offering current information about the company.

To learn more about saving and investing, and keeping your finances in order, visit the Investors section of FINRA.org.