Baggy Mythbusters Espisode 3: TrAdiNg HaLtS
Live example with Gamestop
"To follow, without halt, one aim: that's the secret of success." - Anna Pavlova
Last night, Keith Gill (aka: “RoaringKitty”, of past Gamestop fame) returned to X / Twitter after a years-long hiatus and posted this image:
Source: https://x.com/TheRoaringKitty/status/1789807772542067105
Naturally, posting an image of a gentleman holding a game controller had many observers assume that he must be referring to Gamestop shares. With our equity markets being highly efficient, and the New York Stock Exchange representing the pinnacle of that efficiency, Gamestop shares (NYSE: GME) quickly peeled off a gain of nearly 120% in the first half hour or so of trading:
Source: Bloomberg
With reported short interest of approximately 64.3 million shares, that $6 Billion+ increase in market cap represented a near-instant paper loss of about $1.3 Billion for short sellers (all else being equal). The “real” P&L could be higher or lower as this is a raw and dated number and doesn’t reflect other (potentially offsetting or amplifying) positions, such as options exposure.
A quick look at a volume-at-price analysis from 9:30am to 11:am shows the distribution of trading activity.
Almost immediately after the share price crested (at least for now), the complaining began about the unfairness of “trading halts”, and how it always seems that “They” are quick to halt on the way up to shaft “retail investors”, but are slow to halt on the way down. Just more evidence that our markets are unfair and none of us poor schmucks have a chance against “the Wall Street crooks”. Just like the referees always seem to make bad calls against my home NBA team. Rigged. Corrupt. Here is some sample bleating:
Source: X
Source: X
Source: X
The all-powerful “THEY” strikes again and again and again. To see what kind of hijinx and tomclownery THEY were up to this morning, I looked at the 9 different halts between 9:30am and 11:00am, shown below:
Source: Bloomberg, Keubiko annotations
So what we actually see are 5 halts in a row on the way “up” (1-5), followed by 2 halts on the way down (6 and 7), then an up halt (8), then another down halt (9).
I guess “THEY” must be messing with us or maybe going long to then rug pull us out of our money that we’re totally investing wisely and responsibly, right?
As it turns out, there is no “THEY” here. In fact, these halts are completely automatic and are dictated by the National Market System Plan (also known as the Limit Up / Limit Down Plan), that was adopted as a permanent rule by the SEC in April 2019 after a successful 6 year pilot program.
The NYSE describes it here: https://www.nyse.com/markets/nyse/trading-info and there is an entire website dedicated to it:
Here are a few screenshots if you’re too lazy to click:
Source: luldplan.com (Memo to baggies: Don’t check the Advisory Committee)
The NYSE even provides a a running file of the trading halts which you can find here:
https://www.nyse.com/trade-halt
The table below shows these 9 automated halts from the NYSE data:
Source: NYSE, Keubiko annotation
One caveat regarding these halts though. Individual brokerage firms almost always have discretion to implement their own trading restrictions or suspensions independent of whether or not an exchange has halted a security. These are not halts, but sometimes people use the terms interchangeably. These steps can be taken for a multitude of reasons (typically managing risk for clients or their firm). For example, during the Gamestop “event” in 2021, Robinhood restricted trading in Gamestop because it simply didn’t have enough capital to post at the clearing house to carry its clients buy orders from trade date to settlement. Sometimes you get what you pay for with “free” trading and there are benefits to using well-capitalized brokers.