Trading Suspensions
The SEC can suspend trading security for up to ten business days to safeguard investors. This decision follows an investigation and a press release stating why.
After the suspension, the shares will only resume trading under two conditions:
If the ten days lapse or
If the suspension gets lifted.
The suspension period can vary depending on the specific circumstances.
Read on for answers to common questions most investors have.
Why Does the Sec Suspend Stocks From Trading?
Trading suspensions ensure the market remains orderly and fair. They provide that trading in a specific stock happens with complete information only. They also prevent uneven sharing of details and reduce the chances of insider trading.
Trading suspensions happen for reasons such as:
A company expects to announce information that will affect the prices
When there are significant corporate changes
When there are major doubts about the company's future, such as termination of operation or lawsuits
In case of unusual price changes or stock trading volumes
It can be due to uneven distribution or leakage of price-sensitive information.
It can also happen in the case of intentional market manipulation tactics.
If the company lacks updated, accurate, or enough information, such as periodic reports
Why Doesn’t the SEC Warn Investors Before Suspending Trading in a Stock?
The SEC cannot disclose any information regarding the progress of a suspension. Confidentiality ensures that any active investigations are effective. It also safeguards the company and shareholders if the SEC decides against the suspension.
What Happens After the Ten-day Suspension Period Lapses?
The SEC doesn't issue any public information regarding the company's status after time lapses. This is because the company might still be facing significant legal issues.
For instance, the SEC can continue investigating fraud in the company after the suspension. However, the public remains unaware until they make a public announcement.
After the suspension period, a broker-dealer can't ask investors to buy or sell the suspended stock over-the-counter (OTC). They have to meet specific requirements before proceeding.
The broker-dealer must submit Form 211 to the Financial Industry Regulatory Authority (FINRA). The form is to show that they meet all the applicable requirements.
Does Trading Automatically Resume After the Ten Days?
Different markets have different rules, depending on the market the stock trades.
If the stock quoting happens in the OTC market, the activity doesn’t resume automatically after the suspension.
The SEC regulations state that the broker-dealer must review the company's information. This is according to FINRA Rule 6432 and the Exchange Act Rule 15c2-11.
For stocks listed on the exchange market, trading can start immediately after the suspension period.
Precautions to Take After an SEC Trading Suspension
It's essential to exercise caution before investing in stock after a trading suspension. You should:
Evaluate the company's business prospects, organization, and finances.
Check the SEC filings about the company on the Commission’s EDGAR filing system for updated and accurate information.
Avoid making impulsive decisions on tips before doing your research.
