WELCOME TO THE GREY MARKET ARRAYIT. HAHAHAHA
When trading resumes
Once the suspension expires, the formerly-suspended stock will reopen on the Grey Market. In most cases, it will trade on the first day, though issues that were illiquid before the action may not. Usually the more popular the stock was at the time of the suspension, the most trading activity it will see immediately after opening trading again on the Grey Market.
Its first day on the Greys will not be heartening for anyone holding. Normally the first trade will be executed shortly after the bell, and will be a lowball. Very low. It may take the stock down as much as 80% or more. Very likely that the person who ventures that initial trade has entered a market order. Don’t be that guy. Wait to see what happens in the next couple of hours. Usually the price will tick up a little. But you still have a problem: you’re trading blind. There’s no Level II, and no bid or ask. You need to decide what offer you think will be accepted. You’ll be able to see executed trades as they happen, and they will give you an idea of what range you should try for. Trading is likely to be extremely volatile, but by the end of the session price will be sharply down; a loss of between 60% to 80% is common.
When a very active stock is suspended, MMs are trapped along with traders. If they’ve been selling naked to provide liquidity, they may be left with open short positions. They’ll want to cover as soon as trading resumes, and therefore will be buyers. Do not, however, imagine that those short positions will be gigantic; they’ll only provide a brief window in which volume will be high. So time your exit accordingly. Once they’ve taken care of themselves they tend to lose interest.
The stock may rise a little in the week or so following its debut on the Greys, but as it does so, volume will decline, making fills more difficult. It’s best not to wait too long, and lose your chance at recovering some of your investment. After weeks, or perhaps a few months, the price will plateau for awhile, as volume continues to drop. In the end, liquidity will dry up entirely, and the issue will trade only now and then causing the price to drift down slowly.
Can a Suspended Stock ever get off the Grey Market?
In order to resume trading normally, on the Pinks or OTCMarkets’ OTCQB tier, the company must find a market maker willing to file a Form 211 to enable it to regain compliance with Rule 15c2-11. The form looks simple enough, but it is not. And there’s a special section asking whether the issue has been subject to a trading suspension. When an MM files a 211, it assumes liability. For that reason, they are not generally willing to sponsor a company that’s been suspended unless they have very good reason to believe the SEC will not be bringing a further enforcement action. Usually the agency is unwilling to offer such guarantees, and so the stock is left in limbo.
There have been some very very rare cases in which a formerly suspended stock did manage to make their way back to a normal trading platform.
Between January 1, 2010 and March 22, 2019, 3,308 stocks were suspended by the SEC.
Of those 3,308 stocks that were suspended, I know of only 7 that have managed to claw their way back to resume trading normally again:
EDVP (now PRLX)
SDRG (from Sept. 17,2012 SEC Suspension), but SDRG ended up getting suspended again after that
PHOT
GSTN was reinstated to the OTC by FINRA. It was originally suspension by the SEC for questions about adequacy and accuracy of information on May 14, 2012
DHCC re-registered with the SEC on Oct. 14, 2015 after the stock registration had been revoked on Sept. 14, 2014
FTNW re-registered with the SEC on Feb 7, 2017 after the stock registration had been revoked on Sept. 12, 2014
CANN re-registered with the SEC on Dec. 23, 2016
7 out of 3,308 is a very very small percentage, so no matter what the company or other shareholders tell you after your stock has gotten suspended, there is almost no chance that the stock will ever get off the Grey Market or get re-registered with the SEC and go back to trading normally again.
One of my favorite message board posters named Renee keeps tabs on suspended stocks for further reference. Renee also runs a message board forum that tracks new suspensions and revocations.
In Closing
If you’re heavily invested in a stock, an SEC suspension is an unforgettable nightmare. If a stock you’re playing is heavily promoted, or if those Nasty Bashers have raised serious questions about filings, press releases, or other communications from the company, take profits early and often. Ignoring red flags could cost you dearly if a suspension is invoked. There are no good outcomes for suspended stocks.
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