Understanding Trading Suspension and Delisting

    What is suspended trading in the U.S.?

    The U.S. Securities and Exchange Commission (SEC) is authorized under federal law to suspend trading in any stock for a period of up to 10 business days when it believes that a public company may face severe concerns about a company’s assets, operations, or other financial information. The SEC stops trading in a stock to protect investors when a trading suspension occurs. That means you can’t buy or sell shares in the company whose stock faces trading suspension.

    How does suspended trading work?

    The SEC gives three reasons that might lead the Commission to suspend trading: 

    • A lack of current, accurate, or adequate information about the company. For example, when a company is not current in its filings of periodic reports;
    • Questions about the accuracy of publicly available information, including in company press releases and reports, about the company’s current operational status, financial condition, or business transactions;
    • Questions about trading in the stock, including trading by insiders, potential market manipulation, and the ability to clear and settle transactions in the stock. (Source from: www.sec.gov)

    Importantly, the list of current trading suspensions can be found on the website of the SEC, and the SEC does not warn investors beforehand that it will suspend trading in a particular stock.

    There are several instances of suspended trading in recent years. For example, the SEC ordered the suspension of trading in shares of Sports Field Holdings in Oct 2021, because the company had not completed required regulatory filings in over two years and did not respond to questions about its delinquency. In addition, Twitter shares were suspended from trading in Oct 2022 as Elon Musk faced a court-ordered Oct. 28 deadline to close his $44 billion deal to buy the social media company.

    What happens when the ten-day suspension period ends? 

    The SEC will not comment publicly on the status of a company when the ten-day suspension period ends. However, whether trading resumes in the shares of stock depends on which market the stock was trading in. For stocks trading in the OTC markets, SEC rules require brokers to ensure that the stock meets certain requirements before they can solicit trades from investors and resume trading in the stock. In contrast to stocks that trade in the OTC market, stocks that trade on an exchange, such as the NYSE or Nasdaq, resume trading as soon as an SEC suspension ends.

    What is delisting?

    Companies spend a lot of time trying to reach the public markets, but sometimes a stock goes the other way and leaves a stock exchange, and this is called delisting. A stock is delisted when it’s removed from a stock exchange. The delisting can be voluntary or involuntary. When the company chooses to do so for strategic or financial reasons, it is a voluntary move, but it also can be involuntary, when the exchange forces the company to delist, such as a stock that has failed to meet the minimum standards of the exchange. The most common standard is price. For example, a company with a stock price under $1 per share for a period of months may find itself at risk of being delisted.

    What happens when a stock is delisted?

    In the United States, delisted securities may continue to trade over-the-counter on the OTC bulletin board, so shareholders can still trade the stock, though it is likely that the market will be less liquid. Additionally, the share price may or may not be affected by a stock delisting. Shareholders should carefully evaluate delisted stocks, as moving off an exchange may mean that the company is in financial trouble and may be facing bankruptcy soon. For instance, the value of shares doesn’t automatically rise or fall with a delisting, but when an involuntary listing takes place, it’s often a sign that a company is approaching bankruptcy.

    Summary:

    • The SEC is authorized under federal law to suspend trading in any stock for a period of up to 10 business days when it believes that a public company may face severe concerns. 
    • When a trading suspension occurs, investors can’t buy or sell shares in a company whose stock faces trading suspension.
    • The SEC will not comment publicly on the status of a company when the ten-day suspension period ends. However, whether trading resumes in the shares of stock depends on which market the stock was trading in. 
    • Companies spend a lot of time trying to reach the public markets, but sometimes a stock goes the other way and leaves a stock exchange, and this is called delisting.
    • In the United States, delisted securities may continue to trade over the counter on the OTC bulletin board, so shareholders can still trade the stock, though it is likely that the market will be less liquid. 
    The Information presented above is for information purposes only, which shall not be intended as and does not constitute an offer to sell or solicitation for an offer to buy any securities or financial instrument or any advice or recommendation with respect to such securities or other financial instruments or investments. When making a decision about your investments, you should seek the advice of a professional financial adviser and carefully consider whether such investments are suitable for you in light of your own experience, financial position and investment objectives.
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