When the stock market plummets, we often hear the term trading halt. Do you know, what is a trading halt? And under what conditions are trading halts applied? Let’s discuss.
Trading halt is a temporary cessation of stock trading with the aim of reducing fluctuations in the decline in stock prices, not falling deeper. The trading halt policy is issued by the Indonesia Stock Exchange (IDX) and usually we can see the IDX Board of Directors’ decisions through the Idx.co.id website.
The following is an example of a trading halt letter issued by the IDX on March 10, 2020 during the Corona virus outbreak:
From here, we can already analyze that the trading halt will be applied if the Composite Stock Price Index (CSPI) experiences a sharp decline. The following are the trading halt regulations from the Indonesia Stock Exchange (IDX), these regulations can change at any time following the conditions of the Indonesian Stock Exchange that occur:
- Stock trading will be temporarily suspended (trading halt) for 30 minutes if the JCI declines by 5%.
- Trading halts will be carried out again if the JCI experiences a further decline of more than 10%.
- If the JCI drops more than 15% on that day, trading will be suspended. Suspended trading can be carried out: Until the end of the stock trading session or more than one trading session, provided that it has obtained the approval of the Financial Services Authority (OJK).
When trading halts or trades are suspended, you will not be able to trade shares at that time, because trading is temporarily suspended.
Note: The difference between trading halt and trading suspend is that in the trading halt, the entire queue of buying and selling shares which are still open orders (not matched yet), will remain in the Jakarta Automatic Trading System (JATS) trading system.
But if you have been exposed to a trading suspension, then all queues whose status is open orders will be automatically revoked by JATS. So if you are already queuing up to buy shares, say TLKM at a price of 3,100, and when a trade is suspended, your 3,100 queue will be revoked automatically.
Trading halts and trading suspends are indeed prepared for emergency conditions, such as political, social security disturbances, disasters, problems with the remote trading system on the Stock Exchange, to the cessation of stock trading due to market panic (JCI fell 5% according to the above provisions).
So after the trading halt is done for 30 minutes, it is hoped that market participants (traders and investors can take a break, think, make a re-decision not to panic selling and prevent other traders from entering into excessive fear (following up on panic selling).
So, after 30 minutes of trading halt, and stock trading reopens, it is hoped that the JCI can at least start to ease the panic selling of market participants.
TRADING HALT IN INDONESIA STOCK MARKET
Trading halts have occurred in March 2020, where in a month JCI experienced trading halts up to 4 (four times), namely on March 12, 2020, March 13, 2020, March 17, 2020 and March 23, 2020 due to panic selling traders, because at that time The Corona virus outbreak is intense in Indonesia, and I admit this is the most extreme trading halt that has ever happened.
This is one of the trading halts that occurred on March 13, 2020, where stock trading was paused at 09.15 and reopened at 09.45.
Stock market conditions (on online trading software) during the trading halt on March 13, 2020:
During the trading halt, many stocks fell, even second-tier stocks and blue chip stocks like BBRI were hit by lower auto rejects (ARB). Trading halts don’t just happen in 2020.
Is this trading halt really effective in making the stock market rebound or at least reducing the market decline?
Well, the trading halt that was carried out in March 2020 4 times gave varied results. After 30 minutes of trading halt, JCI is still down in the range of more than 4-5%. However, so far this trading halt has eased the JCI’s decline a bit on that day, because several times after the trading halt, the JCI did not drop by more than 6%.
Prior to the emergence of the trading halt policy on March 10, 2020, on March 9, 2020, the JCI had fallen by more than 6%. But this trading halt usually only has an impact on that day. If the stock market still has a lot of negative sentiment, panic selling usually continues.
In addition, we have also faced trading halts in 2000 and 2008.
- Trading halt 2000
On September 13, 2000, at around 15.17 WIB, a bomb exploded at the IDX building, which came from a Toyota car. For this incident 15 people became victims of the tragedy.
Yup, we already know what will happen to the stock market. Of course, JCI immediately fell due to panic selling. Finally, a trading halt was carried out for up to 2 days, namely on September 13-15, 2000.
- Trading halt 2008
The 2008 crisis caused the JCI to fall for months, and on October 8, 2008, the JCI fell 10.38% to 1,451.67 and this event was called Black Wednesday. Finally, at 11.08 WIB, a trading halt was carried out as an effort to prevent the stock decline from being too volatile. The stock trading suspension lasts until October 13, 2008.
That’s the explanation of the trading halt. Hopefully this post can answer your friends’ questions about what is a stock trading halt and its practice in the Indonesian stock market.