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Stock Halts and Circuit Breaker Halts Explained

What is a stock halt?

A stock halt is a temporary suspension in the trading of a particular stock by the exchange. It is one of the many regulations that exchanges follow for the appropriate functioning of the markets. Stock halt procedures are quite useful as they reduce extraordinary volatility in individual stocks and help stabilize the broader market from wild shocks resulting from abnormal trading activity.

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What triggers a stock trading halt?

Trading in a stock can be halted for a number of reasons, including significant news events, regulatory concerns, severe volatility, technical glitches, among other issues. Sometimes, trading in individual stocks can also be restricted if they reach their daily up or down percentage limit. We'll discuss the main reasons stocks are halted below.

What are the circuit breaker halt rules and codes?

In addition to stock trading halts, exchanges also have circuit breaker halt rules that outline conditions when trading in individual stocks or all the stocks in the entire market are paused. It is important for you to know the circuit breaker halt rules and the relevant codes to understand the situation and devise your strategy accordingly. Here we briefly explain the main circuit breaker halt rules and codes:

Code LUDP - Volatility Halt

The Code LUDP is a type of circuit breaker that gets triggered when a stock makes rapid moves up or down outside a given percentage band within a 5-minute time window. As a result, trading in the stock is paused for 5 minutes after which it resumes. The percentage band is between 5-10% for Tier 1 stocks and 10-20% for Tier 2 stocks.

The LUDP circuit breaker allows traders to review their trading strategies amid heightened market volatility, giving the market a chance to cool down. However, the stock can gap up or down as soon as trading resumes as result of the momentum and demand/supply imbalance in the stock.

Code T1 - Pending News

The Code T1 type of circuit breaker represents a stock trading halt due to pending news. For example, if a company chooses to release material information during market hours, it can significantly impact its stock price, resulting in wild swings in its stock. In such a scenario, the company can ask the exchange to halt trading in its stock so as to limit speculation and high volatility in its stock price.

Code H10 - 

Code H10 circuit breaker halt is triggered specifically by the SEC. It could be that the SEC suspects a certain stock - usually a penny or OTC stock - is being manipulated by a group of traders for getting unusually high returns at the expense of other traders. Many deceitful traders can lure naive investors into investing in such stocks, which pumps the stock higher. They then dump the stock at a higher price, leaving investors in deep losses.

The SEC can suspend trading in such stocks for 5 minutes while they assess the volatility or other fraudulent speculation. In some cases, these halts can last several weeks or months, depending on the severity of malpractice, to protect the interests of investors and secure the marketplace. Such stocks can rapidly lose value as soon as trading in them resumes after lifting the Code H10 halt.

Code T12 - 

The Code T12 circuit breaker halt occurs when a stock surges or plummets rapidly by a huge percentage without any change in its fundamentals to support the dramatic rise or fall in its price. The phenomenon attracts the attention of the NASDAQ, which can then investigate for any malpractices or stock manipulation. This can result in a temporary halt in the trading of the security. Such an abrupt and unfathomable jump or fall in a stock’s price is usually the result of a pump and dump scheme or a short squeeze.

These are just a few examples of halt codes. If you'd like to study all of them, you can find the list on NasdaqTrader.com, which we've shared below:

Trade Halt Code Trade Halt Description
T1 Halt - News Pending
Trading is halted pending the release of material news.
T2 Halt - News Released
The news has begun the dissemination process through a Regulation FD compliant method(s).
T5 Single Stock Trading Pause in Effect
Trading has been paused by NASDAQ due to a 10% or more price move in the security in a five-minute period.
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.
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.
T12 Halt - Additional Information Requested by NASDAQ
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.
H9 Halt - Not Current
Trading is halted because the company is not current in its required filings.
H10 Halt - SEC Trading Suspension
The Securities and Exchange Commission has suspended trading in this stock.
H11 Halt - Regulatory Concern
Trading is halted in conjunction with another exchange or market for regulatory reasons.
O1 Operations Halt, Contact Market Operations
IPO1 IPO Issue not yet Trading
M1 Corporate Action
M2 Quotation Not Available
LUDP Volatility Trading Pause
LUDS Volatility Trading Pause - Straddle Condition
MWC1 Market Wide Circuit Breaker Halt - Level 1
MWC2 Market Wide Circuit Breaker Halt - Level 2
MWC3 Market Wide Circuit Breaker Halt - Level 3
MWC0 Market Wide Circuit Breaker Halt - Carry over from previous day
   
T3 News and Resumption Times
The news has been fully disseminated through a Regulation FD compliant method(s); or NASDAQ has determined either that system misuse or malfunction that caused extraordinary market activity will no longer have a material effect on the market for the security or that system misuse or malfunction is not the cause of the extraordinary market activity; or NASDAQ has determined the conditions which led to a halt in an Exchange-Traded Fund are no longer present. Two times will be displayed: (1) the time when market participants can enter quotations, followed by (2) the time the security will be released for trading. All trade halt and resumption times will be posted in HH:MM:SS format.
T7 Single Stock Trading Pause/Quotation-Only Period
Quotations have resumed for affected security, but trading remains paused.
R4 Qualifications Issues Reviewed/Resolved; Quotations/Trading to Resume
R9 Filing Requirements Satisfied/Resolved; Quotations/Trading To Resume
C3 Issuer News Not Forthcoming; Quotations/Trading To Resume
C4 Qualifications Halt ended; maint. req. met; Resume
C9 Qualifications Halt Concluded; Filings Met; Quotes/Trades To Resume
C11 Trade Halt Concluded By Other Regulatory Auth,; Quotes/Trades Resume
R1 New Issue Available
R2 Issue Available
IPOQ IPO security released for quotation
IPOE IPO security - positioning window extension
MWCQ Market Wide Circuit Breaker Resumption
M Volatility Trading Pause
Trading has been paused in an Exchange-Listed issue (Market Category Code = C)
D Security deletion from NASDAQ / CQS
Space Reason Not Available
Notes Halt codes H4 and H9 may be activated in situations where a SEC trading suspension is terminated and a NASDAQ trading halt is terminated, but the company in either instance is not in compliance with specific NASDAQ requirements. Any questions related to a specific trading halt or to the trading halts codes should be directed to MarketWatch at 800.537.3929 or 301.978.8500.

How long is a circuit breaker halt?

Circuit breaker halts are put in place to prevent the indices from unusual and catastrophic single-day declines. There are three levels of circuit breakers, and each level is triggered after the index drops by a predefined percentage from the previous day’s closing price.

Level 1 Halt

The Level 1 halt occurs when the index (S&P 500) drops by 7% from its previous day’s closing price before 3:25 p.m, and the trading is halted for 15 minutes. However, if the drop occurs at or after 3:25 p.m, trading can continue for the rest of the day unless a Level 3 halt occurs.

Level 2 Halt

The Level 2 halt occurs if there is a 13% plummet in the index from the previous day’s closing price before 3:25 p.m. In such a scenario, trading is halted for 15 minutes. However, if the plummet in the index occurs after 3:25 p.m, trading would continue for the remainder of the trading day unless a Level 3 halt happens.

Level 3 Halt

The Level 3 halt happens when the index drops by 20% from its previous day’s close. Trading stops immediately irrespective of when the halt occurred during the day, and the trading would continue to be halted for the rest of the trading day

Can you sell during a halt?

During a market-wide or stock halt, you cannot sell a stock as trading is temporarily halted. If you have a long open position, you will have to wait for the trading to resume to close your open position.

Can you buy during a stock halt?

You cannot buy a stock during a stock halt as trading is suspended for the duration of the halt. So, if you have an open short position or you want to buy a stock, you’ll have to wait for the trading to resume in order to carry out your trade. However, you need to be vigilant in trading halted stocks as they can behave erratically, exposing you to high risk.

Parting thoughts on stock trading halts

Circuit breakers and trading halts serve an important function in the financial markets. They bring stability to the markets and reduce risk by suppressing unusual and high volatility in stock prices. Trading halts are set up separately for individual securities as well as for the whole market, which prevents the market and individual stocks from dropping beyond a specified range in a single day. These halts were put in place after the October 1987 market crash. As a trader, you need to be aware of the circuit breakers for individual stocks, as being in an open trade during a trading halt can land you in a precarious situation.

If you would like to find info on current stock market halts, you can check the NYSE Trading Halts page found here:

https://www.nyse.com/trade-halt-current

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