On: China Trade Halts Locks Up $2.2 Trillion of Shares, Freezing Market

[jpmattia]

I always wondered what evidence there is that a trading freeze would stabilize a market.

Considering the US market has trading halts as well, US regulators should take note: Sometimes a stock goes down because it should.

[vessenes → jpmattia]

Trading halts are common historically in many markets in the US as well, like you said. Commodities have a history of halts, and there have been many periods where you'd have three or four days in a row of halted trading in the first minute; essentially these highly leveraged markets needed to move way, way down or up and took a while to do so with the halt system.

I don't know what commodities markets in the US do now with respect to halts, but in a world where we have retail players swimming with very sophisticated traders, I think the halts likely help more than hurt for the small players; retail brokerage users have no hope of dealing with short term spikes and may get stop-lossed out unfavorably; a halt lets them think hard and change up their stops overnight or once they see the news.

[coliveira → jpmattia]

I think it is OK to have trading halts for particular situations. For example, a stock may be going down quickly just because of a wild rumor. Halting trade for the day may give time to investors, so they can consider what the facts are before taking a more informed decision. On the other hand, I agree with you that trade freezes are not enough to fix true underlying issues -- as it seems to be the case with China.

[hueving → coliveira]

Even a wild rumor is a stupid reason to halt trading. If someone is dumb enough to believe it and they sell their shares at a massive discount, it's not the job of regulators to stop that.

[justin66 → hueving]

Of course it's even worse: those halts punish the ones who do not believe, and who understand what is going on.

[jpmattia → coliveira]

> I think it is OK to have trading halts for particular situations.

Sure, but that's not what I'm referring to: Anytime a stock drop by a given percentage, it is halted. Also, if the market drops by a percentage, the entire market is halted.

If those happen to be part of a larger coupled drop, then the US market would have the same problems opening that the Chinese market is having: Everyone waits for the open, tries sell all at once, re-invokes the halt, and repeat.

[bedhead → jpmattia]

When a certain amount of time is needed to process new information, then halts make sense for relatively brief periods. Otherwise it's silly. Halting Pets.com in 2000 wouldnt have mattered, just like I suspect the halt in the majority of China's stocks wont either.

[jpmattia → bedhead]

> When a certain amount of time is needed to process new information, then halts make sense for relatively brief periods.

Yes. I'm referring to the automatic halts after a percentage drop.

> Halting Pets.com in 2000 wouldnt have mattered,

Exactly. The trading-pause rules have been implemented since then. I'm wondering if the trading halt rules would have exacerbated the Y2K meltdown.

[grandalf → jpmattia]

Behavioral economic studies show that humans prefer to avoid loss more than to gain --

So it's possible that markets rationally cut losses more than they rationally add capital to undervalued stocks.

Regardless, all the "freeze" does is make the published "price" no longer reflect the market price.