DEFINITION:
When trading is suspended, it means the Securities and Exchange Commission (SEC) has stopped trading for a particular investment for a while. The SEC can pause trading for up to 10 business days.
A trading suspension happens when the SEC stops people from buying or selling a certain stock to safeguard investors. During a trading suspension, you can't trade shares of that company's stock.
This occurs when the SEC has concerns or doesn't have the right information from the company. These suspensions can last for a maximum of 10 business days.
You can check the SEC's website to find the current list of stocks that are currently under trading suspension.
As an example, the SEC stopped trading for shares of Sports Field Holdings from September 21 to October 4, 2021. This action was taken because the company hadn't finished necessary paperwork for over two years and didn't answer questions about its overdue filings.
The SEC might stop trading for three main reasons:
The SEC stops trading to keep investors safe when there are concerns that securities aren't following disclosure rules or if there's suspicion of wrongdoing. This might involve things like manipulating the stock price, insider trading, or filing fraudulent documents. The suspension allows the SEC to investigate and make decisions about whether trading in that stock should continue in the future.
Investors don't receive advance notice from the SEC before they stop trading for a specific stock.
Even after the 10-day period of trading suspension ends, the SEC may keep investigating a company. Whether trading restarts for a stock depends on the market it was trading in.
For stocks on OTC markets, brokers must make sure the stock meets specific requirements before they can ask investors to trade and resume trading for that stock. In other markets like NYSE or Nasdaq, trading can resume once the 10-day suspension is over.
After a trading suspension, a company's stock price might drop significantly. Investors could also face difficulty selling shares because there are not enough buyers. In either situation, it results in a loss of investment.
Apart from trading suspensions enforced by the SEC, there are two other situations where investors may temporarily be unable to place buy or sell orders for a stock: trading halts and trading restrictions.
Stock exchanges can pause trading for an hour or a day, and these pauses are known as trading halts or pauses. It's not something the SEC imposes individually.
Two common reasons for a stock exchange to halt trading are the limit up/limit down (LULD) rule, which pauses trading when a stock's price moves too much, and impending breaking news. If a company expects significant news, they'll tell the exchange, which then stops trading for about an hour. This gives the market time to think about the news and make more reasonable, less emotional trading decisions.
You can check the NYSE and CBOE websites to find the current list of securities that are currently under trading halts.
Though uncommon, brokerages can impose restrictions on trading in specific stocks. For instance, in January 2021, both Robinhood and Webull temporarily limited investors from making certain trades in meme stocks.
Robinhood explained that clearinghouses, which handle trades, need a deposit from the broker for all settled trades. During market volatility, especially when there's a lot of frenzied buying, the required deposit increases. On January 28, 2021, during the peak of the meme stock trend, Robinhood had to deposit 10 times the normal amount. Because it couldn't meet this high requirement, Robinhood restricted trading in stocks with the highest deposit needs.
When there's a trading suspension, your pending orders can be canceled. Remember, when trading resumes, the stock price might be significantly different.
If you have a limit order, it won't go through if the price has moved far from your specified limit. With a market order, you might end up paying more than you planned.
In general, trading suspensions or halts are meant to make traders think before they resume trading in the stock. It's wise to follow this advice, look into why the trading was paused, and consider all the fundamentals and news related to the stock.
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