Trading Suspensions Growing More Common

Trading suspensions, such as those set last week by the Securities and Exchange Commission on six bulletin-board stocks, aren't uncommon, but they are sometimes misunderstood.

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A suspension immediately halts trading in a stock for a specified period. "It's kind of a cooling off or a chance for investors to catch their breath," says John Reed Stark, head of Internet enforcement in the SEC's enforcement division. The suspensions do not suggest a permanent halt in the stock will be issued or imply that a criminal action will be filed, he explains. Stark adds that unusual stock activity, such as sudden run-ups or drops in a stock's price, often trigger suspensions.

"It's just an alert to people that we have questions about some of the information that has been circulated," Stark says, adding that he could not comment on the suspended companies themselves.

The SEC has been using temporary trading suspensions as a tool to combat potential abuse or hype, especially when it leads to investor frenzy. Not surprisingly, the number of suspensions has climbed as the bull market has continued to run. In the last fiscal year ended Sept. 30, the commission issued 17 suspensions -- more than quadruple the number in 1995. Of the 17 companies that were halted that year, only one, Shopping.com (IBUY), has fully returned to active trading. Another four or five stocks have seen some isolated trading.

This year, the SEC has already issued seven suspensions, including the six handed down Jan. 29. The stock of another company, Powertech Industries, which trades in Vancouver, was suspended Jan. 13. It looks to have resumed some trading, but is generally inactive.

A suspension theoretically gives the company involved time to address regulators' concerns or rectify any false or misleading information in the public domain. However, in reality, suspensions mean almost certain trouble for a company, and once suspensions are lifted and trading resumes, investors usually storm the exits.

Both Nasdaq and the New York Stock Exchange will temporarily halt trading pending the release of material news, such as financial information. These halts will generally last about 30 minutes or so, but last longer in some cases, according to a Nasdaq spokesman.

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