Trading Halts

Trading Halts Meaning and Rules

9 min read

Trading halts are typically something you see when day trading. Usually, they occur when there’s news, order correction, a technical glitch, or the SEC is concerned with something. Sometimes, there is just massive volatility, and the whole market will stop dead in its tracks and not trade for some time (to cool off).

A trading halt is the temporary suspension of trading for a particular security or securities at one exchange or across numerous exchanges for a specific time. In other words, a halt stops trading for some time for an investigation. Halts can happen numerous times throughout the day and have various durations depending on the situation.

Have you ever been in the middle of a day trade that’s flying, and suddenly, there’s a trading halt? That isn’t always fun because you don’t know when the stock will resume or in what direction it’ll resume. Halts can be nerve-wracking for traders, and some will avoid the types of stocks that have a greater chance of halting (low float stocks, for example)

However, the move that usually results in a halt is pretty fun if you are on the long side of the trade and it spikes in a favorable direction. Parabolic movers move a large volume, and the price jumps quickly. This usually occurs because of an institutional trader’s careless order, news good or bad, or buy and sell orders triggering when support or resistance is breached. (Buy stops!)

That usually causes the stock to shoot up in price quickly. The S.E.C. sees that and issues a trading halt. This is called a volatility halt and is an L.U.D.P. code. In essence, the price freezes until the halt is over. Volatility pauses are 5 minutes. L.U.D.P. stands for limit up and down and is only triggered if the stock’s average price goes up or down more than 5% in 5 minutes.

Is There a Time Limit?

There’s no time limit on some trading halts. It can last several months or forever, depending on the issue. Some stocks have halted and never resumed trading. What happens to the people that were in trades with that stock? Usually, it’s a lost trade for them.

Some stocks will stay halted for up to 6 months. If you’re in a stock that halts for that long, you must wait for it to resume. There’s nothing to be done.

Many times, however, trading halts resume within minutes. Open orders that haven’t been filled can be canceled when a trading halt occurs. That way, you don’t end up on the wrong side of a halt that resumes trading.

Trading Halts
An example of a halt from 10/22/2020. The price moved greater than 5% in 5 minutes, triggering the halt

The Codes and Meanings

Below is a list explaining all the different codes and meanings.

 
Trade Halt Code Trade Halt Description
T1 Halt – News Pending
Trading is halted pending the release of material news. (this could be good or bad news) Bad news would be an “offering.” The good news would be a buyout, for example
T2 Halt – News Released
The news has begun disseminating through a Regulation FD-compliant method(s). (News is out, and it is time for the market to digest it)
T5 Single Stock Trading Pause in Effect
In five minutes, NASDAQ has paused trading due to a price move of 10% or more in the security. (A stock is moving too fast, and the exchange pauses things to calm it down)
T6 Halt – Extraordinary Market Activity
Trading is halted when extraordinary market activity in the security is occurring; NASDAQ determines that such extraordinary market activity is likely to have a material effect on the market for that security; and 1) NASDAQ believes that such extraordinary market activity is caused by the misuse or malfunction of an electronic quotation, communication, reporting or execution system operated by or linked to NASDAQ; or 2) after consultation with either a national securities exchange trading the security on an unlisted trading privileges basis or a non-NASDAQ FINRA facility trading the security, NASDAQ believes such extraordinary market activity is caused by the misuse or malfunction of an electronic quotation, communication, reporting or execution system operated by or linked to such national securities exchange or non- NASDAQ FINRA facility. (this is a potential glitch that the exchange feels needs to be fixed, and thus, the market pauses while they fix it)
T8

 

 

Halt – Exchange-Traded-Fund (ETF)
Trading is halted in an ETF due to the consideration of, among other factors: 1) the extent to which trading has ceased in the underlying security(s); 2) whether trading has been halted or suspended in the primary market(s) for any combination of underlying securities accounting for 20% or more of the applicable current index group value; 3) the presence of other unusual conditions or circumstances deemed to be detrimental to the maintenance of a fair and orderly market. (self-explanatory here)
T12 Halt – Additional Information Requested by NASDAQ (the company must answer questions that the Nasdaq has asked)

Trading Halt Codes and Meanings Cont.

Trading is halted pending receipt of additional information requested by NASDAQ.
H4 Halt – Non-compliance
Trading is halted due to the company’s non-compliance with NASDAQ listing requirements. (This isn’t good! The company has made a serious error and has serious concerns)
H9 Halt – Not Current
Trading is halted because the company is not current in its required filings. (Also not good, probably something they can fix, but it takes time)
H10 Halt – SEC Trading Suspension
The SEC has suspended trading in this stock. (They usually have a good reason for this. These types of halts could be indefinite)
H11 Halt – Regulatory Concern
Trading is halted in conjunction with another exchange or market for regulatory reasons. (Not terrible, but it could cause the pause for a few days or weeks usually)
O1 Operations Halt, Contact Market Operations (Minor)
IPO1 HIPO Issue not yet Trading (Initial public offering issues, usually fixable fairly quickly)
M1 Corporate Action
M2 Quotation Not Available
LUDP Volatility Trading Pause (The stock is moving too fast, maybe 5% in a single 1-minute candle, for example)
LUDS Volatility Trading Pause – Straddle Condition
MWC1 Market Wide Circuit Breaker Halt – Level 1 (This probably means the market is tanking fast)
MWC2 Market Wide Circuit Breaker Halt – Level 2 ( this means the market is tanking fast or there are major communications problems)
MWC3 Market Wide Circuit Breaker Halt – Level 3 (It’s the end of the world! Just kidding, it’s just another level of the halt, and it could be a big deal or event affecting the stock market)
MWC0 Market Wide Circuit Breaker Halt – Carry over from the previous day (the market is closed for volatility due to an event, and no one can buy or sell until politicians quiet the noise 🙂

Breaking Down a Trading Halt

Often, good and bad news causes a dramatic price swing. As a result, companies will agree to give news to the major exchanges before it hits the public. This is often why news is released after hours.

That gives traders time to decide how they want to play a stock. However, there are times when news will come out during trading hours. As a result, the exchanges will halt a stock. This is because they want the information to get out there fairly.

Although, if you’re in the stock that’s halted, you may not see that as fair. Many things can cause a trading halt—for example, a company’s financial status changes, mergers and acquisitions, or restructuring.

Sometimes, a company will issue a recall on its product, or there are changes to upper management. If you trade using fundamental analysis, you know management can make or break a company.

There are legal issues that can stop a company from being able to function properly. All of these things are components that cause trading halts. Many times, halts occur on small-cap stocks like penny stocks.

Our trade room are up on any halt that occurs, especially when our members are in the trade.

Why Do They Occur so Close to Market Open?

Doesn’t seem like trading halts occur pretty quickly after the market opens? As stated above, many companies wait until after the market to release news. It gives traders time to make a plan.

However, it can also cause the buy and sell orders to get out of whack. As a result, an exchange can decide to halt a stock when the market opens to get the buying and selling under control.

How Long Do Trading Halts Last?

Trading halts typically last 5 minutes. The SEC can halt a stock for up to 10 days to investigate it further. Sometimes, the SEC feels that trading certain stocks is unsafe for the public.

Usually, this occurs when a company hasn’t filed its financial reports or statements. Sometimes, a halt lasts much longer than ten days, though.

That’s when your funds can be trapped in a halt. However, a halt lasting longer than ten days is called a trading suspension. Find a service that isn’t pumping stocks that could cause a halt.

Final Thoughts

Trading halts put a temporary stop to trading certain stocks. Many times, they’re stocks that have a lot of volatility. Since day traders are hunters of volatility, these can be attractive stocks to trade. With anything in trading, it’s all about being safe and trading with proper risk management. 

Frequently Asked Questions

A trading halt usually means that a company has news coming out that could affect the stock price. Or there's a large order imbalance between buyers and sellers. 

A halt isn't good or bad news per se. It doesn't reflect on the company, but it can affect traders in that stock when trading resumes. 

It is not illegal to halt trading on a stock. The SEC can halt a stock for up to 10 days. If it goes past ten days, it's now considered a stock suspension. 

If a stock is halted, you can't buy or sell during that time. Once trading resumes, you can start buying and selling again. 

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