What Does the Term "Frozen" Mean in the Stock Market?

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A trader works on the floor of the New York Stock Exchange
A trader works on the floor of the New York Stock Exchange (Image: Andrew Burton/Getty Images News/Getty Images)

The meaning of the term frozen in the field of finance may differ slightly from one scenario to the next. In general, freezing an account, funds or a whole market is equivalent to immobilizing it in order to correct a temporary situation. Freezing makes transactions impossible for a certain period of time. There are many reasons why it might be necessary to freeze a financial entity.

Violations of Financial Regulations

Financial authorities can freeze a stockholder’s account for a variety of reasons. For example, a customer’s account can be frozen if she violates federal regulations by not paying the investment within a certain time period. In another case that occurred at the end of 2006, the account of a Russian hacker was suspended. This man had obtained names and passwords of other stockholders in order to access their accounts and falsely increase values. Afterwards, he sold his own stocks to obtain significant profits.

Restricted Shares

Restricted shares are stocks that the company reserves for human resources compensation plans. These securities are often assigned to employees as stock options. Under this plan, the employee will never be the stock owner; instead, he will be able to take the benefits if the assigned shares increase in value. Firms freeze restricted stocks so that public investors can’t purchase them. Furthermore, companies often take a number of stocks as their own and freeze them so other firms can’t buy them.

Technical Problems

Regulatory authorities can decide to freeze an entire market to stop transactions if they lack the conditions to run them. In 2005, for instance, two major telecom outages, one of them caused by rats chewing through cable insulation, caused a 5-hour shutdown of the New Zealand Stock Exchange. Power outages and software bugs have shut down the Moscoa, London, and Tokyo exchanges, and the terrorist attack of September 11, 2001 caused the freezing of all activity on the New York Stock Exchange for four business days.

Political, Social, and Other Causes

Certain critical situations may also call for freezing a market. The terrorist attack on New York City on September 11, 2001 was one such circumstance, and caused the freezing of all activity on the New York Stock Exchange for four business days. In late December 2001, in response to the grave financial crisis and the popular reaction against the government, Argentine political authorities froze the stock market and stopped the activities of banks and currency exchanges for several days. Additionally, stocks of a specific firm may sometimes be restricted to avoid speculation. This is common when a corporation acquires a company by buying all of its stock. The process produces a variation of prices that may be manipulated investors to obtain high profits.

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