In recent times the Zimbabwe Stock Exchange experienced a few trading halts. The incidences were cases of the all-share index rising beyond set limits on a trading day, and trading was halted for 30 minutes. In this article, we’ll delve into the concept of trading halts, exploring their definition, their work, the reasons behind them, and what they mean for individual investors.
Definition of a Trading Halt
A trading halt temporarily suspends trading for listed security or an entire market. The primary reasons for implementing trading halts are to allow companies to announce important news, address significant imbalances between buyers and sellers, or respond to substantial price movements. We are primarily concerned with the last, but it’s important to remember there are other reasons for trading halts.
In Zimbabwe, the ZSE trading procedures guide trading halts under Section 4.13. Two types of halts are mentioned, the Market Halt and Security Halt.
Market Halt
The Exchange can halt the market during the pre-opening and continuous trading session. According to the ZSE trading procedures;
The market halt can occur in the following circumstances:
- Due to a technical failure of the ATS.
- The ATS cannot be fully used by more than 25 % of the securities dealing firms.
iii. When the Index decreases by more than 8% at the opening of the market compared to its last closing value or during the continuous session compared to its last closingvalue. The halt will not be for more than 15 minutes.
Security Halt
To maintain a fair, efficient, and orderly securities trading environment, the Exchange may temporarily halt trading in one or more securities.
Security halt will occur in the following circumstances:
- Upon the request of the SECZ.
- By the Exchange
(a) Upon receipt of any price sensitive information in respect of the security /
securities traded on the Exchange, during trading sessions.
(b) Prior to obtaining a clarification from the company on a rumour/ report regarding the company which has been brought to the attention of the Exchange and which may have an effect on the price of its security.
(c) When there are unusual market movements in price of a security. In case the price of a security reaches its maximum or minimum permissible price limit during a trading session, without being based on prevailing market events.
How Trading Halts Work
The main goal of stock exchanges is to provide a market where securities can be traded fairly and efficiently. To achieve this, regulatory authorities such as the Securities and Exchange Commission of Zimbabwe (SECZim) and the exchanges have established rules to curb extreme volatility and correct order imbalances. Trading halts serve as one effective measure to achieve these objectives.
Trading halts are commonly used to prevent extreme market volatility resulting from the release of significant news. The volatility is linked to our currency, the Zimbabwean dollar, which has lost considerable value since its return nearly four years ago. A weaker Zimbabwean dollar means higher share price values and bigger movements in share prices. So as the currency devalues, the chances of getting bigger movements in individual counters and the exchange as a whole are higher. These halts can be applied multiple times within a single trading day.
Why are they happening so often?
To understand why they are happening so often, we must look at the rules behind them and the changes. In April 2022, the circuit breakers (the limits) were reduced to tame the massive stock market rallies we saw.
The ZSE will reduce circuit breakers for all counters trading above ZWL1 from ±20% to ±15%;
The ZSE will reduce the circuit breakers for penny stocks (all stocks with a market price below ZWL1) from 100% to 20%;
The ZSE will introduce a market wide trading halt of 30 minutes for index movement (ZSE All Share) of ±10% in a trading session.
While changes at the time contained the ZSE, the devaluation of the Zimbabwean dollar eventually made them too tight for the market. So we started seeing many trading halts.
In June, the rules were adjusted to allow a wider band for the Index movement;
The Zimbabwe Stock Exchange Limited (“ZSE”) would like to notify all stakeholders of the following operational changes effective 12 June 2023: i. The ZSE will change the market wide trading halt threshold from ±10% to ±15% for index movement on the ZSE All Share Index
What Trading Halts Mean for Individual Investors
Although trading halts may be inconvenient, they aim to stabilize the market and reduce panic. As an investor, you must know these halts and their potential impact on your trading activities. Perhaps the thresholds should be more reflective of other fundamentals on the ground. The currency itself can move (in the exchange rate) around 30% in a single day, but markets’ ability to respond to this is limited. Nonetheless, current rules seem to have ended the spate of trading halts.
