What is a Trading Halt?

Stock exchanges are responsible for protecting the interest of the investors. If certain events affect the financial health of a large number of investors, stock exchanges are responsible for taking some action. Announcing a Trading Halt is one of those actions.

A Trading Halt

A trading halt is a momentary pause in the trading of securities at one or more exchanges. It is also known as a stock halt. Trading Halts can take place at any time and there is no maximum limit to their occurrence which creates interruptions in the security trading for a certain period. Any interruption seems negative, though a Trading Halt is imposed to protect the investor’s interest. The main objective of the Trading Halt is to ensure smooth trade execution by balancing demand and supply of stock..

Some of the reasons behind the stock halt include regulatory concerns, technical glitches, expectations of significant news, imbalance of buying or selling order of stock, and so on. It is imposed to provide significant information to investors and prevent potentially illegal transactions. During the halt, open market orders may get canceled.

How does a Trading Halt work?

Trading Halt is a very unusual phase. Stock exchanges announce Trading Halt to prevent investors from making huge financial losses during uneven scenarios. During the halt, the stock exchange forbids trading of a particular stock. During this time, no investor can purchase or sell the shares. In some cases, the entire exchange may be prohibited from trading.

The listed company informs the stock exchange about any significant changes that can greatly affect the stock price, before the public. Based on this information, the stock exchanges halt the trade of the particular stock before its disclosure to the public. This is done to ensure fair trading.

The trading halt is lifted after a certain time. When the trade of the halted security is initiated again, it is known as trade resumption.

What happens during a Trading Halt?

During the trading halt, the stock exchange informs the market that trading in a particular stock is not allowed. Therefore, no investor would be able to buy or sell the respective stock for a specific period. The brokers are prohibited from publishing the quotations. Resuming trades, then, take place following the required rules. The Exchange informs the public about the re-initiation of trade at the time of lifting halt or before some time. Usually, stock prices crash after the halt is lifted. For all the listed stocks, current and past Trading Halt information is published daily.

A Trading Halt is an exceptional interruption used to ensure fair trading, by protecting investors’ interests. It is beneficial for investors who are not up-to-date with all the news. Though, the stock prices may often come down after the stock halt is lifted.