OG Wall Street... Yesterday, the New York Stock Exchange temporarily halted trading on GameStop (five times) and Koss (twice). Investors across brokerages couldn't buy or sell those stocks for around five minutes (each time). The 230-year-old NYSE is one of the two major stock exchanges in the US, along with the much younger Nasdaq.
- Despite the halts, GameStop shares plunged 60% yesterday, and Koss dropped 43%. These companies have been in the limelight, but the NYSE actually halts trading on individual stocks nearly every day.
- BTW: Exchange halts are different from trading restrictions by brokerages, which can also pause trading of certain securities. Viral stocks like GME are still being restricted by some brokerages.
Why so halty?... There are three major reasons that exchanges press "Ctrl + halt + F" on trading.
- Stock swings: Sudden price swings can trigger halts for single stocks, or for the entire market. In March 2020, we had the first market-wide trading halt since 1997. "Circuit breakers" kick in when the S&P 500 plunges a certain percentage from the previous day. Depending on how bad it is, trading can be paused for 15 minutes or the entire day. GME and KOSS were halted yesterday because they quickly moved outside their "price bands."
- News event: Exchanges also halt single-stock trading in anticipation of major announcements (like a scandal or merger). That prevents insiders from trading on privileged info before everyone else finds out.
- Regulatory reasons: The SEC can make exchanges suspend trading of a stock if they suspect something fishy — think: Luckin Coffee accounting fraud.
Trading halts are there to protect investors... They act as a check on impulsive emotional reactions. Selloffs can result in panic, which can cause a cascade effect that could lead to a stock (or the entire market) crashing. Since new circuit breaker guidelines were implemented in 2013, the market hasn't plunged more than 13% in a day — a hopeful sign of halts' effectiveness. Halts also level the playing field between reactive investors and those who aren't up to date on the news. They can prevent insider trading and other illegal transactions at the expense of other investors.