Halts, Placements and SPPs: Corporate Action Mechanics for Traderseric

This is the fourth special topic in the ASX order book series, after surviving earnings season. The ASX is home to a huge number of small and mid caps that raise capital frequently. Those raisings, and the trading halts that surround them, create order flow that is more predictable than most traders realise.

Trading halts

A company can request a trading halt while it prepares a price-sensitive announcement, most commonly a capital raising, a major transaction or results that need to be released before trading continues. Halts are typically short (often no more than a couple of trading days); longer pauses become suspensions.

Two things matter for traders.

The reopening. When a halted stock resumes, it doesn't simply start trading. It goes through a pre-open phase and an auction, just like the opening auction. Several journals described trading these mid-session reopening auctions with the same techniques as the morning open: read the indicative price, the surplus and the book, and judge whether the reopening price makes sense given the announcement.

Being stuck. If you hold a position when a stock enters a halt, you can't exit until it resumes. The journals had painful examples of overnight positions caught in a halt that resolved as a discounted capital raise. If you hold small caps overnight, halt risk is real gap risk.

Unexplained moves and price queries

When a stock moves sharply with no announcement, the ASX may send the company a price query asking whether it's aware of any information that hasn't been disclosed. Traders watch for unexplained run-ups before announcements, because they sometimes precede news that was supposed to be confidential. Several journals commented sharply on stocks that moved strongly on heavy volume the day before an announcement. The practical point: a big unexplained move is information. Treat it carefully, and don't assume you know what it means.

Placements

A placement is the most common way for ASX companies to raise money quickly: new shares are issued to institutional and sophisticated investors, usually at a discount to the recent price, often during a halt.

From a trading perspective, a placement creates three things:

The placement price magnet

The placement price behaves like a magnet in both directions:

• If the stock trades well above a recent placement price with no new information, there's a large group of holders sitting on a quick profit who may sell. In the journals, a stock opening far above a recent raise price was a recurring fade candidate: wait for it to falter, then short.
• If the stock trades below the placement price, the participants are underwater. Their selling can dry up (nobody wants to crystallise a loss), but sentiment can turn sour as each new raise leaves holders worse off.

Share purchase plans (SPPs)

An SPP usually follows a placement and lets existing retail shareholders buy new shares at the same price, up to a cap. SPPs take weeks to complete. Two moments matter:

• During the offer, if the stock trades below the SPP price, retail holders simply won't take it up, and the raise may fall short.
• On settlement, when the new SPP shares land, some holders sell immediately. If the stock has traded above the SPP price, that's a free profit for them, and the selling can push the open down for reasons that have nothing to do with the business.

That settlement-day selling is a classic mechanical gap. If the book underneath is strong, the gap can reverse quickly once the sellers are done, which makes it a candidate for the gap-fade logic from the gap cause post.

Entitlement offers

An entitlement offer (a rights issue) gives existing shareholders the right to buy new shares in proportion to their holding. Renounceable offers let holders sell their rights, which then trade separately. Accelerated structures handle institutions first and retail later. The mechanics vary, but the principle is the same: the offer price becomes an anchor, and the timetable tells you when new shares, and potential sellers, arrive.

Capital raising red flags

Beyond the mechanics, the journals showed a healthy scepticism about why companies raise money. Common warning signs:

• A raise shortly after the company said it was "fully funded."
• Repeated raises at progressively lower prices.
• A raise that is large relative to market capitalisation, implying heavy dilution.
• A raise needed because cash burn is much higher than guided. (The next-but-one special topic covers how to spot this in quarterly reports before it happens.)

A corporate action checklist