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Trading in Stock After an SEC Trading Suspension — Be Aware of the Risks

08/30/2010

Investors should be very cautious when considering trading in stock after the SEC has suspended trading in the shares. An SEC trading suspension is a “red flag,” often indicating the SEC has concerns about the information that the company has been providing to the public. By law, an SEC suspension usually ends after ten business days, even if the company has not provided current, accurate information about itself. However, when a company does not provide current, reliable information about itself and its finances, trading its shares can be very risky.

Why would the SEC suspend trading in a stock?

The SEC may suspend trading in a stock when the Commission is of the opinion that a suspension is required to protect investors and the public interest. Circumstances that might lead the Commission to suspend trading include:

  • A lack of current, accurate, or adequate information about the company, for example, when a company has not filed any periodic reports for an extended period;
  • Questions about the accuracy of publicly available information, including in company press releases and reports, about the company’s current operational status and financial condition;
  • Questions about trading in the stock, including trading by insiders, potential market manipulation, and the ability to clear and settle transactions in the stock.

How long do trading suspensions typically last?

The Securities Exchange Act of 1934 authorizes the SEC to suspend trading in a stock for up to ten business days. A list of companies whose stock is currently suspended, or which have been subject to an SEC suspension, may be found here.

What happens after a trading suspension ends?

When an SEC trading suspension ends, a broker-dealer may not solicit investors to buy or sell the previously-suspended stock until certain requirements are met. Before soliciting trades or resuming quotations in a stock that has been subject to a trading suspension, a broker-dealer must file a Form 211 with the Financial Industry Regulatory Authority (“FINRA”) representing that it has satisfied all applicable requirements, including those of Rule 15c2-11.

Among other things, Rule 15c2-11 requires broker-dealers to review and maintain certain documents and information about the company, including:

  1. the corporation’s organization, operations, and control affiliates;
  1. the nature of the securities outstanding and being traded; and
  1. the issuer’s most recent balance sheet and its profit and loss and retained
    earnings statement.

No broker-dealer may solicit or recommend that an investor buy shares in a stock that has been subject to a trading suspension unless and until FINRA has approved a Form 211 relating to the stock. If there are continuing regulatory concerns about the company, its disclosures, or other factors, such as a pending regulatory investigation, a Form 211 application may not be approved.

However, limited or “unsolicited” trading can occur in a stock that has been subject to a trading suspension after the suspension ends but before a Form 211 is approved. This may allow investors to trade the stock when a broker or adviser has not solicited or recommended such a transaction. Even though such trading is allowed, it can be very risky for investors without current and reliable information about the company.

Take Precautions Following an SEC Trading Suspension: Check For Reliable Information.

Investors should be very cautious in considering an investment in a stock following a trading suspension. At very least, investors should assure themselves that they have current and reliable information about a company before investing.

  • Research the Company: Always research a company before buying its stock, especially following a trading suspension. Consider the company’s finances, organization, and business prospects. This type of information often is included in filings that a company makes with the SEC.
  • Review the Company’s SEC Filings: This information is free and can be found on the Commission’s EDGAR filing system.
  • Beware of Companies that do not File Reports with the SEC: Some companies are not required to file reports with the SEC. These are known as “non-reporting” companies. Be aware of the risks of trading the stock of such companies, as there may not be current and accurate information that would allow you to make an informed investment decision.
  • Be Skeptical: Whenever someone gives you a “hot” tip, always ask why. Make sure that you do your own research. Keep in mind that information from online blogs, social networking sites, and even a company’s own website may be inaccurate and sometimes intentionally misleading:

If you cannot obtain current, reliable information about a company and its stock, this may not be a good investment for you.


Additional Information

For additional educational information for investors, see the SEC’s Office of Investor Education and Advocacy’s homepage. For additional information relating to trading suspensions, also see:


The Office of Investor Education and Advocacy has provided this information as a service to investors.  It is neither a legal interpretation nor a statement of SEC policy.  If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.