Withdrawing Trading Privileges
As a protection to investors, exchanges are empowered to withdraw a listed security’s trading and listing privileges, either temporarily or permanently. Serious actions like delisting rarely occur but temporary interruptions and other protective measures are more common. These actions may be executed by the exchange or at the request of the company concerning its own securities.
Temporary Interruption of Trading
The three types of temporary withdrawals of trading privileges that an exchange can invoke are:
Delayed Opening
Shortly before the start of trading, an exchange can delay the opening. This might be necessary if there is an influx of buy or sell orders for a specific security. The delay lets traders organize the orders and align buys with sells to ensure fair and orderly trading. Delayed openings in one security do not affect other listed securities.
Halt in Trading
An exchange can temporarily halt trading to allow for the communication of significant news, such as pending mergers or substantial changes in dividends or earnings.
Suspension in Trading
Trading privileges can be suspended for more than one session due to reasons such as the company’s financial instability or failure to comply with listing requirements. If the company resolves the issue within the time frame specified by the exchange, trading may resume. During the suspension, members can usually execute orders for the security in the unlisted market, except on the TSX Venture Exchange.
sequenceDiagram
participant Trader
participant Exchange
participant Company
Trader-»Exchange: Place Orders
Exchange-»Trader: Trading Temporarily Halted
Exchange–»Trader: Trading Resumes or Still Suspended
Cancelling a Listing (Delisting)
A security can be delisted either by the exchange or at the request of the company. Delisting permanently cancels listing privileges. Reasons for delisting include:
- The security no longer exists due to redemption or merger.
- The company is bankrupt or without assets.
- The public distribution of the security is too low.
- Non-compliance with listing agreement terms.
FAQ
What triggers a delayed opening?
A heavy influx of buy or sell orders can trigger a delayed opening to ensure fair and orderly trading.
When can trading be halted?
Trading can be halted at any time to disseminate significant news like merger announcements or substantial changes in earnings.
What happens during a trading suspension?
During a trading suspension, the company must rectify the issue to resume trading. However, members may conduct transactions in the unlisted market unless specified otherwise.
What are common reasons for delisting?
Delisting often occurs due to the security no longer existing, company bankruptcy, low public trading volume, or non-compliance with listing terms.
Key Terms & Definitions
Delayed Opening: Postponing the start of trading for a security to align buy and sell orders.
Halt in Trading: A temporary pause in trading to communicate significant news.
Suspension in Trading: A longer-term halt due to non-compliance or financial issues.
Delisting: Permanent removal of a security from the exchange.
Key Takeaways
- Exchanges can temporarily or permanently withdraw trading privileges for investor protection.
- Temporary measures include delayed openings, trading halts, and suspensions.
- Permanent measures include delisting due to reasons such as non-compliance, bankruptcy, or low public distribution.
Complete the online activities to further assess your understanding of these procedures.
📚✨ Quiz Time! ✨📚
## What is the primary reason an exchange might withdraw trading privileges for a listed security?
- [ ] To reduce the number of securities available in the market
- [x] To protect investors
- [ ] To manipulate market prices
- [ ] To increase trading volume
> **Explanation:** The exchange has the authority to withdraw trading privileges to protect investors. This can be done temporarily or permanently depending on the circumstances.
## Which of the following scenarios might result in a delayed opening of trading for a security on an exchange?
- [x] A heavy influx of buy or sell orders shortly before opening
- [ ] An error in the trading software
- [ ] A company announcing a minor policy change
- [ ] Trading holidays
> **Explanation:** A delayed opening may be ordered to give traders time to organize a heavy influx of buy or sell orders and to align buys with sells for fair and orderly trading.
## What is the difference between a delayed opening and a halt in trading?
- [ ] A delayed opening affects all listed securities, while a halt affects only one security
- [x] A halt in trading allows for the communication of significant news, whereas a delayed opening aligns orders
- [ ] A halt in trading is permanent, while a delayed opening is temporary
- [ ] There is no difference between the two
> **Explanation:** A halt in trading allows for the communication of significant news, such as a pending merger. A delayed opening helps organize orders for fair trading.
## Under what circumstances might trading privileges be suspended rather than halted or delayed?
- [ ] During the holiday season when trading volume is low
- [ ] When a company declares dividends
- [x] When a company's financial condition does not meet exchange requirements
- [ ] When a new competitor enters the market
> **Explanation:** Trading privileges can be suspended if a company's financial condition does not meet exchange requirements or if it fails to comply with its listing agreement.
## Which of the following is NOT a reason for delisting a security?
- [ ] The company has gone bankrupt
- [ ] The security was substituted due to a merger
- [ ] The public distribution of the security is too low
- [x] Significant increase in the company's stock price
> **Explanation:** Delisting typically occurs if the company goes bankrupt, the security was substituted due to a merger, or the public distribution of the security has dwindled.
## When an exchange imposes a halt in trading, what is its immediate purpose?
- [x] To allow the reporting and communication of significant news
- [ ] To lower the stock price temporarily
- [ ] To stop trading indefinitely
- [ ] To push investors to sell their shares
> **Explanation:** A halt in trading allows for the reporting and communication of significant news, such as significant changes in the company's financial status.
## How long can a suspension in trading last?
- [ ] Up to one trading session
- [ ] Only until the market close on the same day
- [x] More than one trading session
- [ ] Indefinitely without any possibility of resumption
> **Explanation:** Suspensions in trading can last for more than one trading session and are typically imposed for various reasons including non-compliance with exchange standards.
## What term describes the permanent cancellation of a security's listing privileges?
- [ ] Suspension
- [ ] Halt
- [x] Delisting
- [ ] Withdrawal
> **Explanation:** Delisting refers to the permanent cancellation of a security's listing privileges, either by the exchange or at the request of the company.
## During a suspension in trading on the TSX Venture Exchange, are members allowed to execute trades for the suspended security in the unlisted market?
- [x] No, they are not allowed to execute trades in the unlisted market
- [ ] Yes, under certain conditions
- [ ] Yes, they can trade freely in the unlisted market
- [ ] Yes, but only after the first trading session
> **Explanation:** During a suspension, members are usually allowed to execute orders in the unlisted market except for those securities suspended from trading on the TSX Venture Exchange.
## What might happen if a company fails to rectify the issue that led to the suspension of trading privileges within the time required by the exchange?
- [ ] The company will be allowed to trade as usual
- [ ] The security will automatically be relisted
- [x] The security may be permanently delisted
- [ ] The company's stock price will be frozen
> **Explanation:** If a company fails to rectify the issues leading to the suspension of trading privileges within the required time, the security may be permanently delisted.