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What is Suspended Trading?

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  • Written By: John Lister
  • Edited By: Bronwyn Harris
  • Last Modified Date: 25 October 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Suspended trading involves a temporary ban on trades in a particular security in a market or exchange. There are several reasons why this might occur, including a forthcoming announcement, an order imbalance or a suspected irregularity. In some situations, an entire market may be suspended.

A suspension of trading in a stock is normally for a fixed period. In many places, this will be for 30 minutes. This is merely a standard measure though, and some stock exchanges allow a suspension to last as long as 10 days. This would only normally be done in cases of suspected serious irregularities.

A stock will often be suspended just before and after a scheduled announcement from the company. This could include a declaration of annual profits or losses, or news of a takeover bid. The suspension allows traders a short time to rationally assess the news and decide whether that influences their decision to buy or sell the stock, rather than react out of panic.

Suspended trading may also follow an order imbalance. This is when there is an extreme disparity between the number of would-be buyers and sellers of a stock. More precisely, the disparity would be between the total number of shares being offered for sale and the total that people want to buy. Normally this would be corrected automatically by the market price changing, so a suspension is reserved for extreme situations.

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One reason for suspended trading would be if officials suspect traders have been involved in a "pump and dump" operation. This involves scammers buying stocks, releasing false information about their future prospects, then selling them at a profit. Once these sales are completed and the scammers pull out of the market, the stocks will usually drop rapidly to their "natural" price or even further.

It is also possible for suspended trading to affect an entire market or exchange. This is a very rare event, the most likely reason for which is a technical error. If computer systems which connect traders are not working, trading may be suspended while the problem is rectified. This is unlikely to cause actual losses in itself, though if another market in a different time zone opens during the delay, it could have an unusual knock-on effect when the suspended market re-opens. The more common financial damage is in a loss of commissions among traders who are unable to complete deals during the suspension.

A market can also be suspended when there is a widespread problem with stocks. If there is a general panic causing all stocks to drop rapidly, officials may suspend trading in the hope of causing a cooling-off effect. This is something of a gamble as suspending trading in this way is itself a sign that the problem is serious, and it can provoke even worse losses when trading reopens.

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