After publishing articles and press releases that mention the halting of a stock, we received a few questions from readers including: What is a trading halt?, Why are stocks halted? and What do halts mean for traders and investors?
What is a Trading Halt?
Simply put, a trading halt is a brief pause in the trading of a stock for a particular reason. When market participants can't agree on where to price a security following major news or the like, exchanges and regulatory bodies step in to halt trading. Think of a trading halt as letting the dust settle.
What Causes a Stock Halt?
The most common reason for a trading halt is "news pending", like it sounds, a halt for this reason is because the company is about to release material (important to investors) information about the company. Examples of corporate developments that may trigger a trading halt include:
transactions including significant real estate deals, mergers and acquisitions
changes in the financial condition of the firm
product recalls
legal or regulatory problems
addition/resignation of senior management personnel
Trading halts also occur during periods of extreme volatility. These are not discretionary decisions on behalf of the exchange, venue, regulator or company, but rather pre-existing rules-based "circuit breakers", intended to allow market participants a chance to "stop and think". These rules vary by country and exchange, and are listed below for the some of the markets we currently cover:
A 10% swing in a single stock within a five minute period, will trigger a 5-minute trading halt. Additionally, all trades executed at a price 5% or more beyond the price that triggered the halt will be canceled.
United States: (OTC Markets, NASDAQ, NYSE, BATS etc.):
U.S. exchanges follow a similar rule to Canadian markets with a 10% swing in a five minute period triggering a 5 minute pause, that may be extended by the exchange in the event of a significant imbalance of buy or sell orders.
Australia (ASX):
The ASX has no type of official volatility based circuit breakers.
London Stock Exchange (LSE):
The LSE's circuit breakers are based on 5-25% price bands (based on the trading segment of the stock). If these levels are breached, trading pauses for 5 minutes.
Frankfurt (Deutsche Bourse):
In Germany, specific percentages that trigger a volatility based halt are not published, however in the event that a stock moves outside of the predefined bands, it will be halted.
In rare circumstances trading halts happen when a company no longer meets the requirements of being public in its jurisdiction (for example, filing periodic financial statements) or the requirements of the venue that it trades on. In these cases it is likely that the halt will persist until the company has met whatever requirements necessary.
How do I Find Information About Trading Halts?
To find up-to-date halt information for the aforementioned exchanges, be sure to check out the following links:
TSX, TSX Venture & CSE Stock Halts are posted on live on the IIROC website found here.
A list of halts on the OTC Markets can be found here.
NYSE and NASDAQ listed halts are published on the NASDAQ website here.
Live data relating to halts and suspensions on the ASX as well as corporate announcements (as mentioned above, stocks in Australia are only halted due to news or corporate actions) is available on their site.
LSE trading halt data is not consolidated on their website, however they publish a list of codes regarding the trading status of their listings that can be found here.
Like the London Stock Exchange, Frankfurt doesn't aggregate data regarding trading halts on their exchange website.
What do halts mean for investors?
Don't jump to the conclusion that all halts are a bad thing, many news pending halts are related to M&A, and volatility related circuit breakers can be triggered with both up and downside moves. Think of them as they are intended, a time to level the playing field and give traders and investors a chance to "stop and think".
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