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What is a Trading Halt?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 11 November 2016
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    Conjecture Corporation
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Trading halts are short periods where the active trading on a security is suspended. Often, the issuance of a trading halt has to do with some type of public announcement that made about the security or the company that issues the security. Once the announcement has been made, the trading halt ends and trading on the security can resume.

However, there is a second reason for the enactment of a trading halt. In the event that some type of order imbalance occurs with a given security, a stock market authority may impose a temporary hiatus on any buying or selling of the security. Essentially, this is an attempt to allow the security to settle back into a state of balance between the orders to buy and sell.

Typically, a trading halt will only last for a short period of time. In the event that the stoppage of trading took place due to a pending public announcement, the halt may be ended as quickly as a half-hour after the announcement is complete. The idea behind a trading halt in this instance is to allow investors an equal amount of time to evaluate the information contained in the public announcement and decide whether to buy or sell shares of the security.

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Just about any investment market may experience a trading halt. As long as the security in question is actively traded, there is the potential for the ratio between orders to sell and orders to buy to get out of balance. At the same time, announcements that may impact the future trading activity of a given security are very common. A seasoned investor realizes this and does not automatically assume something is wrong when a trading halt is called.

It is important to note that a trading halt is not a punitive measure. The suspended trading is normally employed as a means of maintaining a degree of order and fair play within the function of a given market. From this perspective, the responsible issuance of a trading halt is in the best interests of all parties concerned.

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