What is a stock-trading halt and why do exchanges order them?


Shares of Silicon Valley Bank parent SVB Financial Group

were halted shortly after markets opened on Friday and never reopened. Back in January, shares of nearly 200 securities were halted because of a glitch on the New York Stock Exchange.

Readers might be wondering: what is a trading halt, and why do exchanges order them?

Trading halts were first implemented decades ago to help guard against a sudden and destabilizing plunge in markets, according to current and former floor traders. And although the rules have been updated and standardized over time, the basic purpose remains the same: to prevent stocks from careening out of control and unnecessarily destroying billions, or trillions, of dollars’ worth of wealth.

“Halts give traders, investors and the community time to pause, take a deep breath, regroup and trade the stock,” said Jonathan Corpina, senior managing partner at Meridian Equity Partners and a longtime floor trader at the NYSE.

Rules governing trading halts were standardized by the Securities and Exchange Commission in 2012 following the flash crash of May 6, 2010, when the S&P 500
Nasdaq Composite
and Dow Jones Industrial Average
suddenly dropped by more than 5% in the span of minutes, temporarily erasing nearly $1 trillion in market value.

As a result, the SEC established new uniform rules for so-called “limit up, limit down” halts imposed on individual stocks, as well as revising rules governing market-wide circuit-breakers.

The limit up, limit down rule requires exchanges to halt trading in shares of a single security if they move up, or down, in a sudden sharp manner. The magnitude of the move required to order such a halt depends on different factors like the size of the company, and they typically kick in when the price of a given security suddenly deviates from a rolling average.

Exchanges can also halt trading in a single stock if a major piece of corporate news is about to be announced, since companies are required to inform exchanges ahead of time. These are called “news pending” halts, and they can last from a few minutes up to multiple days in some rare cases.

Rules for market-wide “circuit-breaker” halts are more concrete and are divided into different levels: a Level 1 halt is triggered when the S&P 500 falls 7% from the previous session’s close. A Level 2 halt occurs when the S&P 500 falls 13%. In both instances, trading is halted for a minimum of 15 minutes.

A Level 3 halt occurs if the S&P 500 suffers a drop of 20%. If this happens, the NYSE and other major U.S. exchanges close trading early.

Market-wide trading halts like these are pretty rare, and the most recent examples occurred during March 2020, when volatility inspired by the advent of the COVID-19 pandemic repeatedly interrupted trading in stock markets around the world.

The longest market-wide halt in recent memory occurred after the Sept. 11 terror attacks, when U.S. equity trading was halted for four days, the longest closure since the 1930s.




Related articles

ChatGPT app downloads are slowing down, BofA finds

Sam Altman, CEO of OpenAIWin Mcnamee | Getty...

Missing Texas Teen Found Alive!

1A miracle occurred two days ago. A missing...

GM second-quarter sales increase 18.8% as supply chain stabilizes

2024 Chevrolet Silverado HD ZR2GMDETROIT – General Motors'...

How A.I. took center stage in the Hollywood writers’ strike

After failing to reach a contract resolution with...


Please enter your comment!
Please enter your name here