The Securities and Exchange Commission ("SEC") recently released an investor bulletin to educate investors about trading suspensions.
Federal securities laws generally allow the SEC to suspend trading in any stock for up to 10 business days.
It's important for firms to know the causes and effects of trading suspensions and what impact those suspensions might have on their business.
What Causes a Trading Suspension?
The most common circumstances that lead to suspensions include the following:
- Lack of current, accurate, or adequate information about the company, including failure to keep current in filing required periodic reports;
- Questionable accuracy of publicly available information, such as press releases or reports regarding the firm's:
- current operational status
- financial condition
- business transactions
- Questionable trading in the stock, including:
- trading by insiders
- potential market manipulation
- the ability to clear and settle transactions in the stock
It is important to note that the SEC will not announce that it is working on a suspension due to concerns of confidentiality, maintaining the integrity of the investigation, and to protect trading integrity.
Are Continuing Investigations Made Public?
The SEC will not comment publicly on the status of a firm when the ten-day suspension period ends due to the likelihood of ongoing, serious legal problems for the firm in question; the SEC may continue to investigate a firm to determine whether fraud has occurred.
A continuing investigation will remain confidential until the SEC files and publicly announces an enforcement action against the firm.
What Are the Effects on Trading Once the Suspension Is Lifted?
When an SEC trading suspension ends, a firm may not solicit investors to buy or sell the over-the-counter (OTC) stock in question until the firm has filed Form 211 with the Financial Industry Regulatory Authority (FINRA). This form verifies that all applicable requirements have been met, including those of Rule 15c2-11 and FINRA Rule 6432.
No broker-dealer may solicit or recommend that an investor buy an OTC stock that has been subject to a trading suspension unless and until FINRA has approved a Form 211 relating to the stock. FINRA approval may be delayed in cases where regulatory concerns remain.
What Exceptions to the Rule Exist?
According to the SEC's Investor Bulletin:
"However, limited or "unsolicited" trading can occur in an OTC 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."
Also, stocks that trade on an exchange, as opposed to being traded on the OTC market, resume trading as soon as an SEC suspension ends, although the value of the stock is likely to be significantly lower as a result of the suspension.
Even though such trading is allowed, it can be very risky for investors without current and reliable information about the company.
How Should My Firm Handle Trading Suspensions?
The first action your firm should take is preemptive. Your firm should regularly monitor the list of stocks that have been suspended, which is published by the SEC, to be sure none of their investments have been affected.
Second, it is important that you build into your firm's policies and procedures an action plan that identifies steps to take to avoid costly errors or regulatory infractions. An important component of that action plan is to monitor the progress of the Form 211 filing to know whether or not it has been approved before recommending or soliciting the stock to a retail client.
Questions Regarding Trading Suspensions? - We Can Help
Jacko Law Group, PC, is available to assist you in developing the necessary protocol for handling the aftermath of trading suspensions, as well as designing training programs that keep your entire staff abreast of regulations.
Add a comment
- Top 3 Considerations During the Breakaway & Transition Process
- Succession Planning: Identifying a Successor
- California AG Submits Final CCPA Rules for Approval
- ICO To Return $25 Million to Investors
- SEC Charges Morgan Stanley Smith Barney with Providing Misleading Information to Retail Clients
- FINRA’s Senior Help Line: Celebrating 5 Years of Providing Protection
- How To Start: Are You Evaluating Your Firm’s Whistleblower Policies?
- Three Firms’ Failure to Disclose Conflicts of Interest Lead to Almost $1 Million in Disgorgement, Interest
- OCIE Risk Alert—Examinations Focused on Initial Compliance With Regulation Best Interest
- Lone Star Value Management Firm and Founder Pay to Settle SEC Disclosure Charges
- Securities and Exchange Commission (SEC)
- Investment Advisers
- Aging Clients
- Due Diligence
- Transition Services
- Broker Protocol
- Policies and Procedures
- Virtual Currency
- California Consumer Privacy Act (CCPA)
- Dodd-Frank Act
- Advisers Act
- Securities Law
- Office of Compliance Inspections and Examinations (OCIE)
- Ponzi Scheme
- Form U5
- Private Equity
- Private Funds
- Regulation Best Interest
- Hedge Funds
- Regulatory Examinations
- Personally Identifiable Information (PII)
- Government Shutdown
- Risk Alert
- Social Media Marketing
- Exchange-Traded Funds (ETFs)
- Investment Company Act
- Rule 6c
- Wells Fargo