Share suspensions are the worst false market
Stopping a clock does not stop time and suspending dealings in shares doesn’t stop their value falling. As directors of an investment house, New Star Asset Management’s board, of all people, should know that.
As recession bites we can expect a lot more companies to ask the UK Listing Authority to suspend share dealings and this branch of the Financial Services Authority should resist the requests - even if they do not make New Star’s mistake of telling the stockmarket it wanted a suspension before it told the regulator.
As New Star found, the damage is even worse when the regulator refuses the request, leaving the shares to continue falling.
Some company directors’ reaction to a falling share price is to ask for a halt in dealings as though that stops the fall. Regulators are there to prevent false markets but when there is a genuine reason for share prices to tumble or for volumes to increase, they should allow the rout to continue.
It is better that investors can get out at some price than they cannot get out at all. Worse than a false market is a false non-market in which no-one knows the shares’ real value.
Part of the problem stems from commentators who get their terminology wrong on suspensions. It is common to read that “shares were suspended at 10p” when what is meant is that the shares were trading at 10p before dealings were suspended.
It is the dealings that are suspended, not the price. Suspension does not freeze a value. You can usually bet that the “shares suspended at 10p” are actually now worth a lot less, if only investors could sell.
The value plunges anyway and the refinancing – or administration – that follows the suspension reveals just how big the loss is. A stopped clock is right twice a day; a suspended share never gives a true price.
