What you should know about the different types of trading halts
Why trading halts can protect investors
Which companies are currently under suspension
For the most part, trading on the ASX takes place without interruption throughout the day.
But sometimes, a stock may be subject to a short-term trading halt, trading pause, or even longer-term suspensions.
Generally speaking, the aim of these halts is to protect investors, but sometimes they could also be a precursor to some negative announcements from the company in question.
Investors should therefore proceed cautiously before purchasing a stock after a trading suspension has ended.
On the the ASX, there are three types of trading halts/suspensions, and here’s what you should know about each of them:
Trading Halt
On the ASX, a Trading Halt (sometimes also called Pause in Trading) is typically initiated by the company, which allows them time to disseminate important new information.
The vast majority of trading halts is due to cap raising announcements, an event that could have a material impact on the stock price.
During a halt, trading in the stock is effectively suspended, meaning no buying or selling can occur.
This pause allows investors to digest the information and make informed decisions once trading resumes.
Apart from cap raising, trading halts can also be used prior to announcements such as a merger, acquisition, or even a material contract signing.
ASX Operating Rule 16.4.2 says that a trading halt can only be applied for a maximum of two trading days.
But it can also be as short as one hour during the trading day.
Pause in Trading
A Pause in Trading can also be initiated by the ASX (as opposed to the company) due to certain circumstances.
This could be things like unexplained big price jumps or falls, excessive volatility, or even market-wide issues.
During a Pause in Trading, the ASX would usually query the company if they knew of any relevant news which may have caused the share price move.
The pause is often lifted by the ASX once the company makes a satisfactory response to the ASX query.
A pause in trading can sometimes be applied across the whole market to help stabilise it during turbulent conditions.
In November 2020, a glitch in the ASX system shut down trading, with the ASX announcing a trading pause for the entire market for almost a full trading day.
Suspension from Quotation
Suspension from Quotation is probably the most serious of the three trading halts.
It refers to the ASX’s decision to halt trading in a particular stock for a more extended period.
This could be imposed for things such as financial distress, fraud, regulatory concerns, or a disciplinary measure. Companies can also be suspended if they fail to comply with the ASX listing rules.
The duration of Suspension from Quotation can be longer from a halt, and will remain in place until the underlying issues are resolved, or until the ASX is satisfied.
Some shares are suspended for months, even years, before they are either delisted or reinstated to quotation.
At the moment, a list of ASX companies under longer term suspension for various reasons include:
Holista Colltech (ASX:HCT)
Epsilon Healthcare (ASX:EPN)
Audio Pixels (ASX:AKP)
Leo Lithium (ASX:LLL)
Atomos (ASX:AMS)
The market’s circuit breaker
Trading halts, which basically serve as circuit breakers, are put in place to meet the needs of today’s volatile markets where trades can be executed in milliseconds.
The mechanisms are designed to protect investors, especially retail investors who would normally receive price sensitive news slower than institutional investors.
Importantly, these circuit breakers could stop algorithmic trading computers from executing sell orders that may cause freefalls in the market.
Although trades can not be executed during a trading halt, investors still can place, amend, or cancel orders.
On resumption of a trading halt, the initial price will be set on where the higher buyers and the lowest sellers meet – establishing an orderly market.
The post Confused? Here’s what trading halt, pause, and suspension from quotation mean on the ASX appeared first on Stockhead.
