Securities Law Updates | New Releases/No Action Letters
September 27, 2012
FINRA Issues New Investor Alert: When Trading Stops: What You Need to Know About Halts, Suspensions and Other Interruptions
When Trading Stops: What You Need to Know About Halts, Suspensions and Other Interruptions
FINRA No. ____, 9/25/2012
The Financial Industry Regulatory Authority (FINRA) today issued a new Investor Alert called When Trading Stops: What You Need to Know About Halts, Suspensions and Other Interruptions. While trading in most stocks takes place without interruption, FINRA’s new Alert explains how, when and why interruptions in trading occur, and discusses both what brokers are required to do and what investors should do in these situations.
When a company is listed on a U.S. stock exchange, it agrees to notify the listing exchange about any corporate developments that could affect trading activity in its stock—before announcing them to the public. Stock exchanges have the authority to halt trading based on their evaluation of a given announcement. These regulatory halts tend to be relatively short and are designed to allow prompt and full dissemination of the news to the marketplace at large. While the halt is in effect, brokers are prohibited from publishing quotations or indications of interest, or trading the stock.
In contrast to trading halts, the Securities and Exchange Commission (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. Many factors influence the SEC’s decision, including a company’s failure to keep up the required filing of periodic reports and whether market manipulation may be taking place.
For the most part, companies subject to trading suspensions have been quoted in the over-the-counter (OTC) market. When a trading suspension ends, a broker that wants to resume quoting the stock immediately must first obtain current information about the company from a reliable source, file a form with that information and obtain approval from FINRA.
“In sharp contrast to trading halts, the trading suspensions the SEC imposes usually aim to help stop fraud. Investors should exercise real caution before purchasing a stock after a trading suspension has ended,” said Gerri Walsh, FINRA’s Vice President for Investor Education.
When Trading Stops also discusses single stock trading pauses, currently triggered when the price moves up or down by specified percentages in a rolling, five-minute period, as well as marketwide circuit breakers that may be activated by specified percentages declines in the Dow Jones Industrial Average.
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