Suspension of trading

Trading suspension

A suspension can be the harbinger of some bad news, but equally it can herald the announcement beneficial to the shareholders. What it does mean is that, while the suspension is in force, the stock cannot be traded.

Why is it necessary to suspend a stock from trading?

The purpose of suspension is to ensure a fair and orderly market, so that trading in a particular stock is undertaken on a fully informed basis and to avoid any uneven information dissemination and opportunities for insider dealing.

Generally speaking, a suspension will occur if:

  • the company is about to release an announcement on price-sensitive information;
  • there are material corporate activities, such as contemplating a rights issue or arranging a placement;
  • there are fundamental concerns about the company's suitability for continued listing and / or trading, such as liquidation, cessation of operation or involvement in material litigations or investigations;
  • there are unusual movements in the price or trading volume of the stocks which may be caused by uneven dissemination or leaks in price sensitive information in the market; or if there are deliberate market manipulation activities; or
  • the Stock Exchange of Hong Kong is of the view that a listed company has seriously breached the Listing Rules, e.g. the listed company is unable to meet its obligation to periodically disclose its financial information.

Suspension can be initiated by the listed company itself or by the market regulators, the SEHK and the SFC. Usually, suspensions initiated by listed companies involve material corporate activities and fundamental concerns about the company's suitability for listing and / or trading, while a suspension initiated by regulators may be in relation to untoward movements in price or trading volume. A listed company which intends to suspend trading of its shares should apply to the SEHK with specified reasons.

How long can a suspension last?

It depends but the SEHK can delist an issuer after a trading suspension of 18 and 12 continuous months for main board and GEM issuers respectively. For a temporary suspension related to corporate activities, trading will usually resume once a proper announcement has been made. In the event of great concerns, such as liquidation and material litigations, the suspension might be much longer. The continuation of a suspension for a prolonged period without appropriate measures being taken to resume trading may eventually lead to delisting.

What should I do if my stock has been suspended?

You must keep an eye on the latest announcements concerning the progress or resumption of trading for the listed company concerned in newspapers or on the websites of HKEx or Growth Enterprise Market. For most stocks which have been suspended for more than three months, you can check out the HKEx's Prolonged Suspension Status Report, which carries details of the date of suspension, the reasons for suspension and the current status.

What are the pitfalls for investors?

Investors can be caught out by unexpected halts in trading. Those most at risk are day traders who expect to buy and sell a stock on the same day.

If a stock is suspended after it has been purchased, the investor will not be able to sell in the market, but will still have to pay for the stock. A friendly brokerage may roll over the amount due from you, but it is more likely that payment will be insisted upon. Some may allow clients to pay later, usually on penalty of an interest charge. This is why investors should only trade with sufficient financial backing.