What it means
Investor.gov, the SEC's investor education site, says there are two types of trading halts and delays: regulatory and non-regulatory. The most common regulatory halt happens when a company has pending news that may affect the security's price, which is called a news pending halt.
Pausing trading gives market participants time to assess the news, so everyone trades with the same information instead of some traders acting first. Trading resumes once the news is out and the market judges it has been absorbed.
Another regulatory halt happens when a market is uncertain whether a security still meets its listing standards. Investor.gov says that when a security's primary market imposes a regulatory halt or delay, the other US markets that trade the security honour it, so a halt in one place stops trading across the system.
Who decides matters. Investor.gov states that securities exchanges, not the SEC, decide whether to impose a trading halt or delay in a stock.
Exchanges are self-regulatory organisations, which means they can develop and enforce their own rules. A trading halt is different from an SEC trading suspension.
The SEC's Investor Bulletin on trading suspensions says federal securities laws generally let the SEC suspend trading in a stock for up to ten business days. It lists reasons such as a lack of current, accurate or adequate information about the company.
For an investor, a halt has a practical cost, because you cannot buy or sell while it lasts and the price may move sharply when trading resumes. Orders already in the market may be handled in line with the exchange's rules, so check your broker's terms.
A halt does not say whether the news is good or bad, so read the company's announcement and wait for the reopening before acting. Halts also matter for businesses that hold shares as investments or that issue shares themselves.
A finance team valuing a listed holding at the period end uses the last traded price, and it should note any halt in force on the reporting date. A listed company expecting to release significant news should plan its announcement timing with its exchange rules in mind.
In practice
Real-world examples.
Example
A fictional company tells its exchange it will soon announce a takeover offer. The exchange halts the stock as a news pending halt. Trading resumes after the announcement has been released.
Example
A fictional exchange has doubts that a company still meets its listing standards. It halts the stock, and other markets that trade it honour the halt. The stock cannot trade anywhere until the halt is lifted.
Example
A fictional investor holds a stock that is halted for news. Her sell order cannot execute during the halt. She waits for the announcement and then reviews her position at the reopening.
Formula
Calculation
There is no formula for a halt itself. The price move across the pause is: percentage change = (reopening price - closing price) / closing price x 100.
Worked example: a stock closes at $40 before a halt and reopens at $46 after good news. The move is ($46 - $40) / $40 x 100 = 15%, and nobody could trade during the pause. An investor holding 500 shares sees the position rise from 500 x $40 = $20,000 to 500 x $46 = $23,000, a $3,000 change that she could not act on while the halt lasted.Case study
Seen in the real world.
This case study is fictional and illustrative. A small drug developer is listed on a US exchange. Shortly before the open, it tells the exchange it will release trial results. The exchange pauses trading in the stock as a news pending halt. An investor with a limit order to sell sees that nothing fills while the stock is paused.
Other markets that trade the same stock honour the halt, so she cannot sell elsewhere either. She reads the release when it comes out. Trading reopens with the price well below the prior close, because the results were mixed. She had no chance to trade during the halt, so she checks her order and decides to hold. The halt did not cause the move.
It delayed trading until the information was public. The lesson is that a halt is a pause for information, not a verdict. Read the news and decide with a plan.
Watch out
Common mistakes.
- Treating a halt as bad news about the company, when it only pauses trading while information is released.
- Confusing an exchange halt with an SEC trading suspension, when exchanges decide halts and the SEC suspends separately.
- Assuming you can sell on another market during a regulatory halt, when other US markets honour the halt.
Questions
People also ask.
What is a trading halt?
It is a temporary pause in trading of a security. It gives investors time to receive important information before trading resumes.
Who can halt trading in a stock?
In the United States, securities exchanges decide whether to impose a halt or delay. The SEC can separately suspend trading for up to ten business days.
Is a trading halt the same as a circuit breaker?
No. A halt can be specific to one security or news event. A circuit breaker is a separate pause mechanism, and a halt can also arise from company news or listing questions.
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