When Does the Stock Market Suspend Trading?

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The stock market is a general term used for the floor and system that allows investors to buy and sell shares in companies that are represented on the market. The most famous stock market is the New York Stock Exchange, but all stock markets work in similar ways. In the United States, the United States Securities and Exchange Commission and other major organizations have the power to suspend trading on the stock market, but only in certain cases and for specific companies.

Suspension Definition

A stock market suspension occurs when trading for a particular security is stopped. This means that investors cannot take any action regarding this security. Those who own it cannot sell, and those who may be interested in buying cannot buy. The company is also barred from making any changes to the stock. This suspension occurs all at once and typically lasts for at least several days, but no more than 10 days total.

Individual Trading

A stock market suspension only applies to the stock and securities of one business, not of the entire stock market. The entire stock market cannot be shut down so easily: a suspension is not meant to affect the economy as a whole in any particular way. Investors can still trade stocks and bonds from other companies as they normally would.

Purpose

Stock suspensions occur so that organizations can review a company's financial records. This is common when a company is suspected of fraud, or when large mistakes have been made in records, or when a specific type of legislation needs to be clarified. Since these events have a huge impact on the company, the stock is suspended to protect investors from rumors and doubts while the company is being fully investigated.

Halts and Delays

A suspension should not be confused with halts and delays. A halt occurs when the company suspends stock trading itself for a short amount of time, usually no more than an hour, so that it can share important news with investors. A delay is the same thing, but occurs at the beginning of the trading day so the company is late letting people trade with their stock.

Effects

When a suspension occurs, the stock usually begins trading again at a vastly reduced price. This happens because investors are filled with apprehension about the suspension and regard the company with suspicion even when the results of the suspension were neutral.

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