The Moscow stock exchange suspended trading for days – also possible in Germany or the USA?

Russian stock exchanges remained closed for days
In the past, there have often been stock market closures due to wars or economic crises
Closure serves to protect investors

The start of the Ukraine war also caused great turbulence on the stock markets. The Russian stock exchanges felt this most clearly: the Russian leading index RTS fell a full 50 percent to 610.33 points on the day of the invasion. The Russian stock exchange barometer MOEX also dipped 45 percent at times to 1,681.55 points. Just a day later, the RTS was up 26 percent on hopes of peace talks by the close. After all, the MOEX posted a solid plus of 20 percent.

Faced with such drastic price fluctuations, the Central Bank of Russia decided to close the stock exchanges up to and including March 10th. According to Bloomberg, the Russian trading floor recorded the longest period of closure in the history of Russia. Russia’s monetary authorities took this drastic step to cushion the negative impact of Western sanctions on Russia and prevent further panic in the markets. The head of the Institute for European Economic Law at the University of Cologne, Ulrich Ehricke, comments to WirtschaftsWoche: “The stock market is being put into an artificial coma to calm the situation.”

Buy time to provide information assurance

In principle, the closing of the stock exchanges should guarantee one thing above all: time. In times of war, there is often very diffuse information, as can currently be observed in the Ukraine war. So in order to give investors the opportunity to obtain more information so that an informed investment decision is possible at all, stock exchange trading is interrupted.

On a smaller scale, this happens quite regularly on the stock exchange. A company’s shares are often suspended from trading if it has to make a mandatory disclosure on a topic that could lead to large price fluctuations, such as insolvency or a takeover. This is for investor protection. In the same way, trading in individual securities can be interrupted due to extreme volatility so that a new price can be determined. The exchange operator makes these decisions.

Federal government decides on suspension of stock exchange trading

However, it is different when decisions are made about stock exchange trading as such. The government must take action here. It is theoretically also within the competence of the stock exchange management to close trading “if orderly exchange trading is temporarily endangered or if this appears necessary to protect the public” and “if orderly exchange trading no longer appears to be guaranteed”, as paragraph 25 of the Stock Exchange Act stipulates, however, as Ehricke argues, the cessation of trading would then have to be justified for each individual security, which in his opinion makes it extremely unlikely that exchange trading would be cessated on this basis. The Federal Government, on the other hand, can invoke the Law on Credit 46g Moratorium, cessation of banking and stock exchange transactions, but this must be done in consultation with the Deutsche Bundesbank.

Interruption of trade in times of war and crisis

The last time German stock trading was halted was on September 11, 2001, following the attack on the World Trade Center in New York. However, the only thing that happened here was that trading ended earlier. Trading was resumed the very next day. In the USA, the terrorist attack also led to the suspension of stock exchange trading, and there was still no trading a day later.

In the past, however, there have often been stock market closures that lasted for years. War was usually the cause: Against the background of the First World War, the German stock exchange was closed for a full four years. Stock exchange trading in Germany also came to a standstill during the Second World War. In addition to wars, major economic crises have also disrupted stock market activity in the past. In the USA, the time of the “Great Depression” should be mentioned here, when President Franklin D. Roosevelt called for a whole week of “bank holidays” in 1933 in order to cushion the effects of the financial crisis. Another recent example is the Greek crisis of 2015, when the Athens stock market was put on a five-week hiatus while the Greek government negotiated another bailout with the EU.

Deutsche Börse excludes Russian stocks from trading

Although the outbreak of the Ukraine war caused and still causes major upheavals on the German stock market, no decision has yet been taken to interrupt stock exchange trading as such. However, Deutsche Börse decided at the beginning of March “to protect the public” to stop trading bonds, shares and derivatives from Russia until further notice. However, as the lawyer Ulrich Ehricke told WirtschaftsWoche, it is conceivable that Russian companies could sue. It could be argued that the decision of the Deutsche Börse exceeds the scope of discretion permitted by 25 BrsG and possibly not only serves to protect investors, but is also politically motivated, after all the decision “would have a strong impact on the economy in Russia and thus as a result also hit the Russian state”. Ultimately, however, this would have to be decided by the courts, but until then Russian securities should remain excluded from trading.

Editorial office finanzen.net

Image sources: Rawpixel.com / Shutterstock.com, Julian Mezger fr Finanz Verlag