Suspension of trading
Suspension of trading is a measure of the management board of a stock exchange that the exchange trading with retail properties in general or a particular commercial property for an indefinite period prohibited.
Stock exchange prices are characterized by the fact that they are subject to more or less strong fluctuations. The price formation is based on the different ideas of the market participants and represents a price risk for them. However, if the price fluctuations and thus price risks are so great that proper stock exchange trading can no longer take place, the management may intervene in trading and (temporarily) prohibit price quotations . Direct transactions between exchange participants are then also prohibited.
The Stock Exchange Act (BörsG) knows two types of price suspension. The management of an exchange is authorized to suspend or cease trading in trading objects in accordance with (1) BörsG:
- Trading is to be suspended if orderly stock exchange trading is temporarily jeopardized or if this appears necessary to protect the public;
- Trading is advisable if orderly exchange trading no longer appears to be guaranteed.
In the event of suspension or suspension, the law assumes that orderly exchange trading can no longer take place. If, on the basis of the issuer's notification, the management of the exchange recognizes that the prices agreed by the trading participants are not being determined fairly and transparently as a result of their lack of information, the correctness of exchange trading is no longer guaranteed. Temporary threats lead to suspension, longer-lasting threats to longer-lasting cessation of trading.
Both measures lead to the listing of the price and must be reported to the stock exchange supervisory authority and the Federal Financial Supervisory Authority (BaFin). The provision of Section 25 (1) of the Stock Exchange Act is adopted in Section 57 of the Exchange Rules for the Frankfurt Stock Exchange . Thereafter, the management can suspend trading in the regulated market "if orderly exchange trading is temporarily jeopardized or if this appears necessary to protect the public." If this orderly exchange trading is no longer possible, trading can even be stopped entirely.
A so-called volatility interruption in the Xetra computer trading system takes place when a possible price is “outside the dynamic price range”. This corridor is used by the trading systems calculated the stock market, a suspension of trading is immediately communicated to investors. Volatility interruptions take in stocks from the DAX and values of the STOXX Europe 50 indices three minutes for all other securities five minutes. The scope of the price corridor is not published so that market participants cannot adjust to it.
If prices fluctuate very strongly over a long period of time, the exchange management can suspend the price quotations with the status of " Fast Market ". This last happened on March 16, 2020 because of the COVID-19 pandemic .
Causes and consequences
Triggers for interventions in stock exchange trading can be events in a single security (announced ad hoc publicity by companies ), in the public ( panic buying and selling) or extreme events ( terrorist attacks on September 11, 2001 ). In WpHG is prescribed that price-sensitive facts immediately prior to publication must be notified to the stock exchanges and the BaFin. As a result, the exchanges receive this information about 20 minutes in advance of the public and have sufficient time to decide whether to suspend prices. Ad hoc announcements are likely to cause a significant price change.
The interruption of exchange trading is a discretionary decision of the exchange management. If the stock exchange management has decided to suspend the price, the last price of the security concerned receives the supplementary price
au/ausg = ausgesetzt: Die Kursnotierung ist ausgesetzt, ein Ausruf ist nicht gestattet.
The investor can conclude from a suspension of the price that events have occurred which may be decisive for the valuation of his trading object. Price suspensions then - in contrast to the interruption of trading ("trading halt") - lead to the expiry of all affected orders (Section 6 (4) of the Stock Exchange Terms and Conditions). In view of the published price-influencing facts, market participants have “no longer any interest in the execution of their buy and sell orders given in ignorance of these facts”. Because of the serious consequences of a price suspension by the exchange organs, such a process is the exception. After the price suspension, the last determined price is used or, in the case of a price suspension before the start of the stock market, the closing price of the previous day.
Suspensions or hiring do not lead to any sales, so that the purchase and sale intentions cannot be realized. These measures are aimed at calming market participants by disrupting trading and giving them time to obtain updated information in order to restore the information balance. Matthias Eck proved in 2005 that events with price suspension are characterized by a strong reaction when trading is resumed. In comparison with ad hoc reports that have not been suspended from the exchange rate, suspended rates show stronger event effects. Corner comes to the conclusion that issuers and investors can trust that price suspensions are usually only made if they are connected to very sensitive information.
Since strong exchange rate fluctuations in the context of a spillovers can spill over from the financial sector to the real economy , a course suspension can also weaken or even prevent financial and economic crises .
In the USA
In the USA, a distinction must be made between “trading halts” and “suspensions” as to whether the US financial supervisory authority, the Security Exchange Commission (SEC) or the stock exchange, initiated a suspension. In most cases, suspensions are initiated by the exchanges themselves. The reasons for this can be violations of listing conditions, trading segment-specific requirements or non-compliance with disclosure obligations . The most observed reason is upcoming corporate news. The SEC has the option of excluding shares from trading on the stock exchange for up to ten trading days . The suspension of trading continues until 11:59 p.m. on the tenth trading day after the announcement of the promotion.
Trading suspensions are not limited to stocks , but can extend to all trading objects, including government bonds , short sales or money . In 2002, for example, so-called bank holidays were proclaimed in both Argentina and Uruguay . Effectively, trading in money, withdrawals and transfers has been suspended. In these cases, too, the aim was to stabilize the respective currency . The long-term suspension of trade in a country's only generally accepted medium of exchange has fatal consequences for an economy based on the division of labor : without a medium of exchange, the division of labor comes to a standstill. As a rule, such circumstances are followed by general impoverishment .
Proponents see the suspension of trading in the securities of individual companies as investor protection . Trading in shares of a company is suspended if that company has to make mandatory reports that could have a significant impact on the price, such as B. insolvency applications , mergers of a company or corporate acquisitions . To this end, the control bodies receive the mandatory notification before publication and can suspend trading before the news becomes known.
Critics see the suspension of trade as a contradiction to the idea of economic liberalism , since markets there should be free from influence. Often trading of a specific security or all securities on a stock exchange is suspended. The reason for this is that when prices rise, securities are bought, which means that the price rises even further, and that when prices fall, securities are sold, which means that the price falls even further. Failure to suspend courses may have exacerbating effects.
- Hamburg Regional Court , WM 1989, 336, 338
- Michael Schuster, Hostile takeovers of German stock corporations , 2003, p. 59 FN 288
- Eberhard Schwark: Stock Exchange Act: Commentary , 1994, § 43 Rn. 5
- Wolfgang Gerke: Gerke Börsen Lexikon , 2002, p. 87
- Siegfried Kümpel in: Heinz-Dieter Assmann / Uwe Schneider: Wertpapierhandelsgesetz: Comment , 1995, § 15 Rn. 133
- DIRK German Investor Relations Circle: Investor Relations Handbook , 2004, p. 481
- Matthias Ecke: Price suspensions on the German stock market , 2005, p. 135 ff.