What is a Stock Halt?
A stock halt, often referred to as a trading halt, is a temporary halt in the trading of a security. Usually, a stock 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.
Common Reasons for a Stock Halt
The most common reasons for a stock halt are as follows:
- Major corporate transactions (such as a merger & acquisition, restructuring, etc.) or news;
- Significant information (negative or positive) about the company’s products or services;
- Regulatory developments that may affect the company’s ability to do business; and
- Significant changes to the financial health of the company.
Advantages of a Stock Halt
Undoubtedly, investors in a stock that is halted would get anxious. However, the fact is, a stock halt is aimed to prevent anxiety. Stock halts are used to protect investors and level the playing field between investors who are informed, reactive, and those who are simply not up to date on the news. The advantages of a stock halt include:
- Allowing all market participants to be informed about any news
- Removing arbitrage opportunities and illegal functions caused by traders
- Giving other markets the opportunity to receive the news and halt trading of that stock on their own exchanges
The NASDAQ and Stock Halts
Whenever a stock is halted on the NASDAQ, as would other exchanges, the NASDAQ uses several halt code identifiers to specify in detail why the stock was halted.
- T1: Halt – News Pending: Trading is halted pending the release of significant (or material) news.
- T2: Halt – News Released: Trading is halted to allow for investors to disseminate news released.
- T5: Single Stock Trading Pause in Effect: Trading is halted due to a 10% or more price change in a security within a five-minute period.
- H10: Halt – SEC Trading Suspension: Trading is halted by the SEC (Securities and Exchange Commission).
The full list of NASDAQ trade halt codes can be found here.
Example of a Stock Halt
Company A, a real estate investment trust (REIT), recently completed an acquisition of major properties in Canada. The company, without notifying the exchange that it trades on, releases the information to the public. With material news on Company A released, the exchange that Company A trades on halts its stock to allow investors to disseminate the information.
Real-World Examples of a Stock Halt
Here are some real-world examples of stock halts:
1. NASDAQ: DRYS
In 2016, DryShips Inc., the owner of dry-bulk carriers and offshore vessels, saw a significant price surge. The stock was trading in the low single digits in the past few months but saw a price surge of 1,500% over a week. The stock closed at $120 per share from its price of $5.10 prior days ago. The NASDAQ decided to halt the stock with a T12 code – halted pending additional information from the company.
2. ASX: SDL
In 2010, in a tragic accident, six Australian mining executives went missing on a flight in Africa. Among those who were reported missing were the company’s CEO and the Chairman. Sundance Resources Ltd immediately requested that their stock be halted for trading on the Australian Stock Exchange to make sure that the news was properly circulated to market participants.
3. TSE: NVU.UN
In June 2018, the stock of Northview Apartment Real Estate Investment Trust was halted due to the release of material news – the trust’s acquisition of a 623-unit portfolio of six apartment properties.
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