SEC Trading Suspensions to Protect Investors Th
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Posted On: 10/24/2016 10:13:43 AM
SEC Trading Suspensions to Protect Investors
The 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. The SEC issues a suspension when it believes that the investing public may be at risk. Many factors influence the SEC’s decision. A very important one is a company’s failure to keep up the required filing of periodic reports—such as annual and quarterly reports—that provide the public with information about the company’s business, corporate outlook and financial performance to date. Another factor is the quality of the publicly available information, particularly if it appears to be inaccurate. The SEC will also consider the trading activity in a stock, evaluating who is actively trading and whether market manipulation may be taking place.
Once the SEC decides to suspend trading, it will issue an order of suspension and announce the reasons(s) for its decision and the actual dates. If the reason is a lack of current information, the SEC will state when the company last filed public reports. This information provides an indication of how stale available information is. Current and past trading suspensions are available on the SEC’s website.
What Happens After a Trading Suspension Ends?
Historically, most companies subject to trading suspensions by the SEC have been quoted in the over-the counter (OTC) market on the OTC Bulletin Board or other broker-dealer operated systems prior to the suspension—and most SEC suspensions are based on a lack of current information about the company. The end of a trading suspension does not mean that quoting and trading automatically start again for OTC stocks. Instead, certain requirements in SEC Rule 15c2-11 must be met. A broker must also file a form with FINRA that needs to be approved before quoting can resume. The broker can file the form after it obtains and reviews current information about the company, including:
the company’s organization, operations and certain control affiliates;
the title and class of securities outstanding and being traded; and
the company’s most recent balance sheet and profit and loss and retained earnings statement.
The broker filing the form must have a reasonable basis for believing the information is accurate and that it comes from reliable sources. A broker generally cannot quote the stock or solicit or recommend the stock to any investor until the form is approved. After approval, the broker can begin quoting—and other brokers may also quote the stock relying, or "piggybacking," on the first broker’s quote without filing the form or reviewing the company information on their own. Be aware that the SEC’s ability to continue a trading suspension indefinitely is strictly limited. As a result, the lifting of a trading suspension does not mean that the SEC’s concerns have been addressed and no longer apply.
The 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. The SEC issues a suspension when it believes that the investing public may be at risk. Many factors influence the SEC’s decision. A very important one is a company’s failure to keep up the required filing of periodic reports—such as annual and quarterly reports—that provide the public with information about the company’s business, corporate outlook and financial performance to date. Another factor is the quality of the publicly available information, particularly if it appears to be inaccurate. The SEC will also consider the trading activity in a stock, evaluating who is actively trading and whether market manipulation may be taking place.
Once the SEC decides to suspend trading, it will issue an order of suspension and announce the reasons(s) for its decision and the actual dates. If the reason is a lack of current information, the SEC will state when the company last filed public reports. This information provides an indication of how stale available information is. Current and past trading suspensions are available on the SEC’s website.
What Happens After a Trading Suspension Ends?
Historically, most companies subject to trading suspensions by the SEC have been quoted in the over-the counter (OTC) market on the OTC Bulletin Board or other broker-dealer operated systems prior to the suspension—and most SEC suspensions are based on a lack of current information about the company. The end of a trading suspension does not mean that quoting and trading automatically start again for OTC stocks. Instead, certain requirements in SEC Rule 15c2-11 must be met. A broker must also file a form with FINRA that needs to be approved before quoting can resume. The broker can file the form after it obtains and reviews current information about the company, including:
the company’s organization, operations and certain control affiliates;
the title and class of securities outstanding and being traded; and
the company’s most recent balance sheet and profit and loss and retained earnings statement.
The broker filing the form must have a reasonable basis for believing the information is accurate and that it comes from reliable sources. A broker generally cannot quote the stock or solicit or recommend the stock to any investor until the form is approved. After approval, the broker can begin quoting—and other brokers may also quote the stock relying, or "piggybacking," on the first broker’s quote without filing the form or reviewing the company information on their own. Be aware that the SEC’s ability to continue a trading suspension indefinitely is strictly limited. As a result, the lifting of a trading suspension does not mean that the SEC’s concerns have been addressed and no longer apply.
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