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 can be halted in anticipation of a news announcement, to correct an order imbalance, as a result of a technical glitch, due to regulatory concerns or because the price of the security or an index has moved rapidly enough to trigger a halt based on exchange rules. When a trading halt is in effect, open orders may be canceled and options still may be exercised.
Trading halts are different from a trading suspension ordered by the Securities and Exchange Commission (SEC). Under U.S. securities law, the SEC may suspend public trading in any stock for up to 10 days to protect investors and the public interest.
Key Takeaways
- A trading halt is a brief stoppage in trading for a particular security or securities at one exchange or across numerous exchanges.
- Trading halts are typically applied ahead of a news announcement, to correct an order imbalance, or as a result of a large and abrupt change in the share price.
- Market-wide halts may also be triggered by severe intraday declines in the S&P 500 index under what are called circuit breaker rules.
How a Trading Halt Works
A trading halt can be regulatory or non-regulatory. Regulatory halts are those applied when there is doubt the security continues to meet listing standards to give market participants time to assess important news, as in the event of a U.S. Food and Drug Administration decision on a new drug application, for example.
A trading halt ensures wide access to the news likely to move the price and prevents those who receive it first from profiting from others late to the information. Other material developments that may warrant a regulatory trading halt include corporate acquisitions and restructurings, regulatory or legal decisions or changes in management.
A regulatory trading halt in a security by its primary U.S. exchange is honored by other U.S. exchanges.
A non-regulatory trading halt can occur on the New York Stock Exchange (NYSE) (but not the Nasdaq) to correct a large imbalance between buy and sell orders. Such trading halts typically last no more than a few minutes until order balance is restored, and the trading resumes.
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 while the balance between buy orders and sell orders is restored.
A federal 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.
Circuit Breaker Trading Halts
U.S. securities exchanges have standing rules for market-wide trading halts in instances were dramatic price declines threaten market liquidity. Cumulative declines of 7% and 13% from the prior's day closing level in the &P 500 index trigger a 15 minute market-wide trading halt if they occur before 3:25 p.m. ET. A 20% decline in the S&P 500 from the prior's day close halts the stock market for the remainder of the trading day no matter when it happens.
Circuit breakers can also apply to trading in any stock under U.S. trading rules. For stocks priced above $3 and included in the S&P 500 or the Russell 1000 indices, as well as certain exchange-traded products like ETFs, trading is halted for five minutes after sudden moves of more than 5% and lasting more than 15 seconds—up or down—from the average price over the prior 5 minutes. For other stocks priced above $3 the sudden price move required for a trading halt is 10%, while those priced between $0.75 and $3 are halted after a sudden gain or loss of 20% or more.
FAQs
A trading halt typically lasts less than an hour (but can be longer) and is called during the trading day to allow a company to "announce important news or where there is a significant order imbalance between buyers and sellers in a security."
What causes a halt in trading? ›
A stock halt, often referred to as a trading halt, is a temporary halt in the trading of a security. Usually, the halt is imposed for regulatory reasons, the anticipation of significant news, or to correct a situation in which there are excess of buy or sell orders for a specific security.
What are the triggers for stock market halt? ›
Market-wide circuit breakers provide for cross-market trading halts during a severe market decline as measured by a single-day decrease in the S&P 500 Index. A cross-market trading halt can be triggered at three circuit breaker thresholds—7% (Level 1), 13% (Level 2), and 20% (Level 3).
What is an example of a trading halt? ›
When an exchange issues a trading halt, the halt has an accompanying code designation that reveals the reason for the halt. For example, a trading halt on the NASDAQ stock market that is coded T1 indicates that the trading halt is due to a significant impending news release regarding a company.
What is the rule for trading halt? ›
Trading halts are typically applied ahead of a news announcement, to correct an order imbalance, or as a result of a large and abrupt change in the share price. Market-wide halts may also be triggered by severe intraday declines in the S&P 500 index under what are called circuit breaker rules.
Who decides to halt trading? ›
The Securities and Exchange Commisssion (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.
Is a trading halt good or bad? ›
A trading halt isn't good or bad, it's just a necessary restriction in a regulated market environment. Ultimately, they promote equal and fair access to information, and protect market participants' wealth by minimising the damage that can be caused by a lack of information.
What happens to a stock after a halt? ›
A listing exchange decides to halt trading of an underlying security. Trading of options on these securities subsequently is halted across all listing option exchanges. The trading halt may be brief or long-term in duration. The listing exchange may eventually make the decision to resume trading.
Can you sell during a trading halt? ›
During a trading halt, one or more securities exchanges will prevent all trades of the specified security. These halts typically last less than an hour but can be longer.
Can you buy during a trading halt? ›
During a halt, trading in the stock is effectively suspended, meaning no buying or selling can occur. This pause allows investors to digest the information and make informed decisions once trading resumes.
Note: ASX Operating Rule 16.4. 2 says that a trading halt can be applied for a period not exceeding the commencement of normal trading on the second trading day following the day on which it is requested.
How do you know if trading is halted? ›
How to know if a stock you own is halted. Most likely, you'll realize a stock is halted if you attempt to trade it and see there is a halt code on the ticker. However, you can also get notified as soon as it happens. Investors can set up trading halt alerts for stocks they own.
How long does a T12 halt last? ›
Occasionally stocks will resume at unusual times, but never at an unusual time of less for halts that are less than 10 minutes. Trading halts due to other codes discussed below including T1 or T12, can last for hours or even days.
What triggers a trading halt? ›
Trading halts can stem from multiple causes. Volatility and pending news are two of the most common reasons. Other causes include failure to document filings with the SEC, suspected fraud or market manipulation, and lack of funds to pay the clearinghouse. Short stock halts occur daily.
Can you sell shares in a trading halt? ›
During a trading halt, investors cannot trade in the halted securities but can make, amend, and cancel buy and sell orders.
Is a T12 halt good or bad? ›
A T12 halt is a bad halt applied to overstock, which has gained the long run for no concrete reasons. Thus after the longest stock halt, the market will make corrections, which leads to the downfall of its prices.
Is a trading halt bad news? ›
Generally speaking, the aim of these halts is to protect investors, but sometimes they could also be a precursor to some negative announcements from the company in question. Investors should therefore proceed cautiously before purchasing a stock after a trading suspension has ended.
How long can a company stay in trading halt? ›
The ASX grants a trading halt at the company's request. The company must tell the ASX the reason for the halt, how long it wants it to last, and what event will end the halt. Trading halts are generally lifted after the release of the relevant announcement and cannot last longer than two trading days.
How many times can a stock be halted in a day? ›
These halts typically last less than an hour but can be longer. Halts can occur multiple times in a single trading day or remain in place over multiple trading days.
