Buying and selling publicly offered stocks

[Being]

A few members here seem to be dabbling in the stock market and I have some questions concerning the system governing the buying and selling of publicly offered stocks. I'm going to start off with an initial question concerning my right to sell something I own. If trading of a stock is halted, does that mean I cannot sell the stock I own to another private party I find willing to pay the price I ask (contractual obligation bypassing the facilitization of Stock Exchanges)? Or is the halt strictly limited to transactions facilitated through whatever specific Stock Exchange decided to halt trading? Think Zynga.

[wiggin]

Halting trading in a stock only applies to the exchange; you can do off-exchange trades to your heart's content. IIRC some people got burned in the flash crash because of this.

caveat: if the SEC stops trading of a stock and not the exchange, that might be a problem for OTC trading. See: trading suspensions by the SEC as opposed to trading curbs or halts by exchanges.

[Being]

That's a good lead into my next questions. Concerning a single stock, for what purposes would an exchange decide to halt trading (outside of SEC compliance)?

[wiggin]

Generally there are 'circuit breakers' in place for the market as a whole if there are huge fluctuations (say, a drop of 5 or 10%) in a short period. Since the so-called 'flash crash' they implemented such curbs for individual stocks as well. They often will also close trading of a stock on an exchange if there's a huge imbalance between bidders and sellers for a particular security, or if there is important news released about a security (e.g. a quarterly report, bankruptcy, a major legal decision, a merger/takeover, etc.).

The SEC generally only gets involved in rare cases when there's something really screwy going on with the company.

[Being]

Generally there are 'circuit breakers' in place for the market as a whole if there are huge fluctuations (say, a drop of 5 or 10%) in a short period. Since the so-called 'flash crash' they implemented such curbs for individual stocks as well. They often will also close trading of a stock on an exchange if there's a huge imbalance between bidders and sellers for a particular security, or if there is important news released about a security (e.g. a quarterly report, bankruptcy, a major legal decision, a merger/takeover, etc.).

The SEC generally only gets involved in rare cases when there's something really screwy going on with the company.

Even I know there is more to it than that. The exchange has to be in danger of losing money or they would not halt trade. Maybe I wasn't specific enough with the question?

[wiggin]

Uhm...? I'm not sure what you're getting at; exchanges get continued business because people feel that the exchange provides for a good way to match up buyers and sellers of an equity. It's in their best interests to watch out for things like large bid-ask spreads, sudden market or stock drops, etc. People will desert an exchange if they feel it's an unsafe place to trade.

For example, the NYSE has these rules for market-wide circuit breakers: http://usequities.nyx.com/markets/ny...rcuit-breakers

Here's their rules for single-stock trading pauses: http://www.nyse.com/pdfs/Rule80c_FAQ_110126.pdf

NASDAQ has detailed codes for different reasons for a trading halt on an equity (I think these codes also apply to NYSE and AMEX): http://www.nasdaqtrader.com/Trader.a...TradeHaltCodes



Anyways, feel free to clarify your question if I'm missing the point of what you're asking. I should mention that I don't know if similar things take place in other exchanges - e.g. the Merc/CBOT et al. I wouldn't be surprised - and I'd bet good money that other reputable exchanges like the LSE or TSE also have similar systems in place.

[Being]

Uhm...? I'm not sure what you're getting at; exchanges get continued business because people feel that the exchange provides for a good way to match up buyers and sellers of an equity. It's in their best interests to watch out for things like large bid-ask spreads, sudden market or stock drops, etc. People will desert an exchange if they feel it's an unsafe place to trade.

For example, the NYSE has these rules for market-wide circuit breakers: http://usequities.nyx.com/markets/ny...rcuit-breakers

Here's their rules for single-stock trading pauses: http://www.nyse.com/pdfs/Rule80c_FAQ_110126.pdf

NASDAQ has detailed codes for different reasons for a trading halt on an equity (I think these codes also apply to NYSE and AMEX): http://www.nasdaqtrader.com/Trader.a...TradeHaltCodes



Anyways, feel free to clarify your question if I'm missing the point of what you're asking. I should mention that I don't know if similar things take place in other exchanges - e.g. the Merc/CBOT et al. I wouldn't be surprised - and I'd bet good money that other reputable exchanges like the LSE or TSE also have similar systems in place.

As far as I can tell there are two categories of customers paying for any exchange's services, listers and investors. Which category provides the most profit to the exchange?

[wiggin]

As far as I can tell there are two categories of customers paying for any exchange's services, listers and investors. Which category provides the most profit to the exchange?

I don't know for certain, but I'd assume the fees levied against investors are quite a bit larger in aggregate than the listing fee paid each year by the company. I'm not sure why that matters, though - neither listers nor investors/traders are interested in a large degree of market volatility. There's an ongoing list of companies whose trading has been stopped for a while - currently, it's mostly Chinese firms on some sketchy accounting/reporting. It's not good for anyone when trading of a stock is halted, but it's even worse for everyone if there's inadequate information about a company's financials, or inefficiencies in the market, whatever. Companies don't like their stocks to jump all over the place, and investors would like to feel that the exchange's price for an equity in some way represents reality. It's in everyone's best interests to keep things on an even keel, and that's what exchanges do.


I don't think that exchanges can completely 'self-regulate'; there's a reason we have the SEC. But it is in their best interests to keep people happy and confident in the exchange's ability to support and accurately portray the market.

[Loki]

You're expecting Being to actually be honest about a question or an answer? Just an opportunity to put forth more of his conspiratorial world views.

[GGT]

So, how did the Facebook IPO fare on NASDAQ? Why are there investors suing for 'fraudulence', or accusations of insider trading? And why is there buzz about moving FB to NYSE?

[agamemnus]

So, how did the Facebook IPO fare on NASDAQ?

Down 17.5% from its IPO price as of market close on Friday 5/25/2012 (today).

Why are there investors suing for 'fraudulence', or accusations of insider trading?

Because of rumors (?) that some bankers in I think Goldman Sachs (or was it JPMorgan) told some of its richer clients that Facebook's projected earnings would be much lower than what was publicly stated, or something.

And why is there buzz about moving FB to NYSE?

Long story short, because NASDAQ had/has a bug in its order execution code that caused orders worth hundreds of millions to be significantly delayed (by several minutes), thus giving terrible prices to buyers/sellers that wanted spot prices (by then they weren't spot). Full technical description here:
http://www.computerworld.com/s/artic...0&pageNumber=2

[Dreadnaught]

At least with the NYSE, ordinary (and not-ordinary) investors provide much more revenue. Listing fees are actually pretty substantial, but also about equal to what NYSE makes from just providing data gushers.

From the last annual NYSE annual report:



I do wish Being would let us in on what he's angling at.

[Dreadnaught]

Really curious what Being's angle was here...