Publishing Indications of Interest During Trading Halts

Two rules meet here. The trading halts rule says when FINRA halts off-exchange trading and when a halt starts and stops. The trading halt prohibition says what a member and its associated persons may not do while the halt runs.

When Does FINRA Halt Off-Exchange Trading in an NMS Stock?

The trading halts rule itself names two mandatory halt triggers for a national market system (NMS) stock. The market-wide circuit breaker halt rule adds further mandatory halts, covered in the lesson on market-wide circuit breakers.

• A regulatory halt on the listing market. FINRA shall halt trading otherwise than on an exchange in any NMS stock whenever a primary listing market declares a regulatory halt in the security.
• Extraordinary market activity plus a system cause. FINRA shall halt trading otherwise than on an exchange when both of two limbs hold, described in the next two paragraphs.

The first limb is that extraordinary market activity in the security is occurring that has a severe and continuing negative impact, on a market-wide basis, on quoting, order or trading activity, or on the availability of market information necessary to maintain a fair and orderly market.

The second limb is a determination about the cause, and it can be satisfied either way. Under the first branch, FINRA determines the activity is caused by the disruption or malfunction of an electronic quotation, communication, reporting or execution system operated by, or linked to, FINRA or a FINRA member.

Under the second branch, after consultation with a national securities exchange trading the security, FINRA determines the activity is caused by the disruption or malfunction of such a system operated by, or linked to, that exchange or a member of that exchange.

Exam Tip: Gotchas

• The extraordinary-activity trigger needs both limbs, not either one. Disorderly trading alone does not reach it; FINRA must also determine a system disruption or malfunction caused it.
• The consultation requirement attaches to only one branch of the cause limb. FINRA must consult a national securities exchange trading the security before pinning the cause on that exchange's system or one of its members.

What Counts as a Severe and Continuing Negative Impact?

For purposes of that paragraph, a severe and continuing negative impact on quoting, order or trading activity includes three examples. The word is includes, so the list is open:

• A series of quotes, orders or transactions at prices substantially unrelated to the current market for the security or securities;
• Duplicative or erroneous quoting, order, trade reporting or other related message traffic between one or more trading centers or members; or
• The unavailability of quoting, order, transaction information, or regulatory messages for a sustained period.

Exam Tip: Gotchas

• These three are examples, not the definition. The rule says includes, so an event outside the three can still be a severe and continuing negative impact.

When Does FINRA Close a Facility Instead of Halting a Security?

FINRA shall, in its discretion, close the Alternative Display Facility (ADF) or any Trade Reporting Facility (TRF) to quotation and/or trade reporting activity, as applicable, whenever either of these is true:

• The facility is unable to accept quotes or trade reports from participants, or unable to transmit real-time quotation or trade reporting information to the applicable processor; or
• There is any other internal or external systems issue that causes a severe and continuing negative impact on the proper functioning of the facility.

The rule then adds a sentence that matters more than the closure itself. If the ADF or any TRF closes to quoting or trading under that paragraph, members would not be prohibited from quoting or trading through other markets for which quoting or trading is not halted.

Exam Tip: Gotchas

• A facility closure is not a halt in the security. Members may keep quoting and trading through other markets that are not halted, which is the opposite result from a regulatory halt.
• The closure power is discretionary in its exercise and mandatory in its form. The rule reads shall, in its discretion, so FINRA decides whether the facts warrant closing, and it closes to quoting, to trade reporting, or to both, as applicable.

What Must a Member Report to FINRA?

Members shall promptly notify FINRA whenever they have knowledge of either of these:

• Any matter related to an NMS stock or the issuer of that stock that has not been adequately disclosed to the public; or
• A regulatory problem relating to that security.

Exam Tip: Gotchas

• The notification duty is not limited to the security itself. It reaches an undisclosed matter about the issuer, which is often where a scenario puts the fact pattern.

When Does a Halt Start and When Does It End?

A regulatory halt. Its start time is when the primary listing market declares the regulatory halt, regardless of whether an issue with communications impacts the dissemination of the notice. Unless the market-wide circuit breaker halt rule specifies otherwise, trading shall resume on notice from the primary listing market that the regulatory halt has been terminated, or at the securities information processor (SIP) halt resume time that notice specifies, as applicable.

A FINRA halt or facility closure. Where FINRA determines a basis exists to initiate a halt or close a facility, the commencement is effective simultaneously with appropriate notice from FINRA, and it terminates upon appropriate notice from FINRA that the halt or closure is no longer in effect.

The terms primary listing market, processor, regulatory halt, SIP halt resume time and trading center take their meanings from the national market system plan of the applicable securities information processor.

Exam Tip: Gotchas

• A communications failure does not delay the start of a regulatory halt. The halt begins when the primary listing market declares it, even where the notice does not go out cleanly.
• A FINRA halt runs on FINRA notice at both ends. Its start and its end are each tied to appropriate notice from FINRA, not to the condition that prompted it.

What May Not Be Done While a Halt Is in Effect?

No member or person associated with a member shall, directly or indirectly, do any of the following in any security as to which a trading halt is currently in effect:

• Effect any transaction;
• Publish a quotation;
• Publish a priced bid and/or offer;
• Publish an unpriced indication of interest (IOI), including "bid wanted", "offer wanted" and name only indications; or
• Publish a bid or offer accompanied by a modifier to reflect unsolicited customer interest.

Two qualifications sit on that prohibition. It applies except as permitted under the Limit Up-Limit Down Plan. And where FINRA closes trading in a security under the facility-closure paragraph above, members would not be prohibited from trading through other markets for which trading is not halted.

Exam Tip: Gotchas

• The prohibition binds the associated person as well as the firm. Its duty-bearer is a member or person associated with a member, and it covers indirect conduct.
• A name only indication is expressly inside the list here. This is the one of the halt rules that names it, alongside bid wanted and offer wanted.
• The unsolicited customer interest modifier does not rescue a bid or offer. Flagging the interest as a customer's own does not take the publication outside the prohibition.

What Should You Check on Exam Day?

• For an extraordinary-activity halt, look for both the market-wide impact and FINRA's determination of a system disruption or malfunction as its cause.
• Distinguish a facility closure from a security halt; only the closure leaves members free to quote and trade elsewhere.
• Date a regulatory halt from the primary listing market's declaration, even where the notice was delayed or garbled.
• Read the list of prohibited acts in full; effecting a transaction, an unpriced bid wanted and a name only indication are all inside it.