Why Do Stocks Get Halted: BBBY Stock Is A Modern Example

Key takeaways

  • Shares of Bed Bath & Beyond surged 60% in volatile trading during Tuesday’s session before plunging in extended trading Wednesday
  • The moves came after GameStop Chairman Ryan Cohen filed two separate SEC forms indicating first a bullish, then a bearish position on the stock
  • As a result, meme traders bid prices so high the New York Stock Exchange halted trading more than once
  • BBBY stock isn’t the first to see its stocks get halted – and it won’t be the last

Bed Bath & Beyond took a wild ride this week thanks to a series of regulatory filings that seemed to cement an influential investor’s position on the beleaguered home goods store. Thanks to increasing price volatility, the New York Stock Exchange (NYSE) was forced to halt trading multiple times to tamp down spiraling exuberance and a sudden short squeeze that saw bearish traders snapping up stock to limit their losses.

This type of frenzied trading raises tons of questions, from who to how to why. But we’re only going to focus on two:

  • Why do stocks get halted?
  • And what’s up with BBBY stock’s rollercoaster gains and losses?

Let’s take a look.

Why do stocks get halted?

A stock halt, or trading halt, is a temporary moratorium on trading activity for a security, set of securities, or even the entire market. Trading halts are commonly initiated by major exchanges, like the NYSE or Nasdaq, to give the market a little breathing room.

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Regulatory and non-regulatory halts

Most trading halts are “regulatory,” which occur when the market needs time to process news. These halts ensure all investors can access crucial information and prevents early-birds from profiting unfairly. Developments that may trigger a regulatory trading halt include:

  • Corporate mergers, acquisitions or restructuring announcements
  • Substantially material information about a company’s products or services
  • Crucial regulatory or legal decisions (such as the FDA’s decision on a new drug)
  • Changes in management structure, personnel or financial health

Exchanges can also institute a non-regulatory trading halt, which gives time for the exchange itself to correct imbalances between buy and sell orders. Trading halts can also occur due to technical glitches.

Stock halts protect investors by evening the odds. Aside from ensuring all investors trade on the same material information, they can prevent illegal transactions and remove opportunities for arbitrage.

Depending on the halt, they can last for minutes, hours, days or even months.

Circuit breaker trading halts

Circuit breaker trading halts occur when stocks or major indices see substantial intraday declines that trigger a “circuit breaker.” Exchanges institute standing rules to ensure that such moves don’t threaten liquidity or fuel panic selling.

For instance, if the S&P 500 Index falls 7% or 13% before 3:25pm ET, the NYSE will trigger a 15-minute market-wide halt. A 20% decline in the index will halt trading until the next trading session, no matter when it occurs.

Individual stocks also follow set circuit breaker rules based on their valuation and the timing and severity of their declines, such as a 10% drop within a 5-minute period.

SEC trading halts

The Securities and Exchange Commission (SEC) also has rules in place to suspend trading. The SEC generally acts when it believes continued trading will harm investors, such as in cases of fraud, market manipulation or when a firm fails to file the proper paperwork. Such suspensions can last up to 10 days under U.S. securities laws.

Brokerage trading halts

Though fairly uncommon, brokerages may suspend trading on claims they can’t fulfill their clearinghouse obligations. Essentially, when volatility spikes, buy orders can greatly outweigh sell orders. In turn, the brokerage may not be able to pay its clearinghouse to execute trades, forcing a trading halt.

However, brokerage trading halts are a bit of a legal grey area. Take Robinhood: after it suspended trading during the meme stock craze of 2021, investors and activist groups filed lawsuits crying foul play, market manipulation and lost profits.

Why do stocks get halted: a meme-y history

Stock halts actually occur regularly, even daily. Exchanges often temporarily suspend trading for stocks that spike suddenly, are expected to deliver big news, or haven’t yet delivered information that would explain sudden market activity.

But in 2021, one stock in particular repeatedly encountered trading halts: GameStop.

In January 2021, GME triggered several circuit breaker halts based on volatility to curb speculation and panic selling. On 25 January, the stock halted nine times in a day, before halting again on 28 January alongside AMC and other “meme stocks.”

The company saw additional halts in March 2021 and again in August 2022 after announcing its upcoming stock split. Each time, GME stock halted for the same reason: sudden, often unprecedented (and generally unwarranted) price volatility.

Meme stocks aren’t the only stocks to get halted

But it’s not just meme stocks.

Exchanges have been halting stocks for over 150 years to curb panic, exuberance and illicit activities. A few notable dates stick out in the hall of halts:

  • Lincoln’s assassination. The NYSE shut down for a full week as the country panicked following President Abraham Lincoln’s assassination.
  • World War I. The NYSE famously halted trading for four months after WWI broke out. Many experts believe the halt prevented foreign investors from selling domestic assets to fund war efforts.
  • 17 October 1997. A market-wide circuit breaker halt shut down the Nasdaq and NYSE floor for the day when the Dow plunged over 550 points. The threshold for circuit breaker shutdowns were later re-evaluated.
  • 9/11. The tragic events of this day prompted the NYSE to close markets for a week to prevent panic selling.
  • 1 December 2008. This date marks the last time (pre-pandemic) the NYSE halted to prevent a major sell-off.
  • March 2020. The markets halted trading periodically during the pandemic’s early months to curb the worst sell-offs. Still, each major index found itself in bear country within a month.

Bed Bath & Beyond the grave

Bed Bath & Beyond is a meme stock for a reason.

The beleaguered home goods retailer floundered through much of the last five years, slowly bleeding foot traffic, revenue and profits. After a failed push post-pandemic to introduce new private label goods, the company closed stores and fired workers. Between 2014 and 2020, its share price plunged from $80 to just $4.

Ryan Cohen’s RC Ventures first stepped in back in March, snapping up a 9.8% stake and proposing strategic alternatives to turn the board around. In the following months, the company added three new board appointees and ousted former Target
TGT
exec Mark Tritton as CEO.

Despite Cohen’s influence, BBBY has struggled to right the ship.

The most recent quarter reported a $358 million loss and $3.3 billion in debt compared to just $108 million in cash. Same-store sales plunged 27% as revenue fell below $1.5 billion. Now, analysts question whether Bed Bath & Beyond will be able to acquire holiday merchandise in time for the upcoming season.

In other words, BBBY has floundered for years – and the stock’s recent performance runs in direct opposition to its fundamentals.

Ryan Cohen: saving grace and a graceless exit

The stock’s major moves this week occurred after Ryan Cohen – famous RC Ventures activist investor, co-founder of Chewy and current GameStop Chairman – released two regulatory filings just one day apart.

The first, released Monday, showed that Cohen purchased over 9.4 million shares of BBBY stock through RC Ventures. 1.67 million of those included out-of-the-money call options with strike prices of $60, $75 and $80 per share. (Call options give buyers the right, but not the obligation, to purchase stocks at set (strike) prices.)

Due in January 2023, and with strike prices 4-5 times higher than the current price, Cohen’s filing suggested he was betting the stock could see massive gains very quickly. That was all it took for meme stock traders and BBBY bulls to pile on the stock, jacking its price from $16 to over $20 per share in hours.

Unfortunately, those hopes were dashed the very next day when Cohen’s Form 144 was released.

The Form 144 filing showed that Cohen’s RC Ventures plans to sell the entirety of its stake in BBBY stock – representing 11.8% of Bed Bath & Beyond’s outstanding shares – in the next 90 days.

Volatility in BBBY stock (and others)

The filing followed a Monday report on signs of financial stress plaguing the home goods retailer’s business. On Tuesday, B. Riley slashed Bed Bath & Beyond’s rating to sell, citing “unrealistic valuations.”

As a result, BBBY stock took a wild ride – and it may not be over yet.

Tuesday, BBBY shares surged nearly 80% in intraday trading before closing up over 30%. The stock saw extensive after-hours and premarket activity, with Wednesday opening $6 higher than Tuesday’s closing price. By Wednesday’s close, the stock soared nearly 12% more…until unfortunate after-market news dragged it down 18%.

As of Wednesday’s close, BBBY stock sits up 58% year-to-day, outpacing the broader market’s gains. August alone has seen shares soar over 300%,

Meanwhile, trading volume has repeatedly outstripped shares outstanding. BBBY switched hands nearly 400 million times on Tuesday and another 249 million Wednesday – despite only 80 million shares in circulation. (And over 9 million of those locked up with RC Ventures.)

BBBY also has the dubious honor of being the most-mentioned stock on r/wallstreetbets this week, the Reddit forum partially credited with driving the meme stock craze. After Cohen’s filing surfaced, BBBY bulls flooded the forum to emphasize that a Form 144 only provides a proposal – not a promise – to sell. (Never mind that the SEC says the filer must have a “bona fide intention to sell…within a reasonable time.”)

The short squeeze frenzy also spilled into a few other meme stock darlings, including sports streaming site FuboTV, meal kit maker Blue Apron and barbecue grill maker Weber. GME also jumped about 5%.

Don’t let market moves halt your trading strategy

For long-term investors, trading halts don’t necessarily impact your strategy – but why take a chance?

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The end result: a portfolio that works for your wants, needs and risk tolerance, without needing you to monitor the daily minutiae of your money moves.

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