Stocks suddenly "restricted from trading"? A must-read guide before handling stock investments

Have you noticed that some stocks experience a fierce rally in a short period, with monthly gains exceeding 100%, but when you try to place an order, you find that it can’t be executed instantly like usual? The margin trading and securities lending functions are also disabled? This is very likely to be crossing the red line of market regulation—your target stock has entered the Disposal Stock category.

So, what kind of stocks are classified as Disposal Stocks? Can they still be traded after being added to this “blacklist”? Do they still hold investment value? This article will delve into the truth about Disposal Stocks.

Why Are Stocks “Imprisoned”? Causes of Disposal Stocks

The Taiwan Stock Exchange’s system for Disposal Stocks is very clear—the purpose is to cool down the market when abnormal fluctuations occur in stock trading by increasing trading difficulty.

What qualifies as “abnormal”? The standards include three main categories:

• Severe price volatility in a short period: over 100% increase within 30 trading days
• Unusually high trading frequency: daily turnover rate exceeding 10%
• Explosive trading volume: trading volume in the past 6 days significantly larger than the average

A stock entering an abnormal state does not immediately become a Disposal Stock. The Taiwan Stock Exchange adopts a “staged warning” approach: first classified as Attention Stock for alerting, during which trading is completely unrestricted; if abnormal conditions persist, it escalates to Warning Stock; finally, it enters the Disposal Stock stage, facing a series of trading restrictions.

How Do Trading Rules Change After Entering Disposal Stock?

Once a stock is classified as a Disposal Stock, the trading environment for investors changes dramatically. Depending on the severity of the abnormality, Disposal Stocks are divided into two stages:

First Disposal Stage:

• Matching time changes from “anytime” to “every 5 minutes”
• If a single order exceeds 10 lots or accumulates over 30 lots, circle storage trading must be used (full pre-funding, no T+2 delayed payment)
• Margin trading and securities lending are disabled

Second Disposal Stage: If the stock remains abnormal during the first disposal period and triggers the standard again within 30 days, it escalates to the second disposal:

• Matching time extends to “every 20 minutes”
• All trades must be circle stored, regardless of buy/sell volume
• Margin trading and securities lending remain suspended
• Trading volume usually shrinks sharply

The duration of these two stages typically lasts for 10 trading days. However, if during the disposal period, the stock experiences a situation where “intraday offset transactions account for more than 60% of the total daily trading volume,” the disposal period is extended to 12 trading days.

After the disposal period ends, the stock can be removed from the list and resume normal trading.

Comparison Table of Trading Rules:

What Are the Differences Between Disposal Stocks, Attention Stocks, and Warning Stocks?

Investors need to understand these three levels of regulatory status to accurately assess risks:

Attention Stock: As long as trading performance is abnormal (e.g., 30-day gains over 100%, high turnover rate, increased volume), it will be classified as an Attention Stock. But this is just a “reminder,” with no restrictions on trading; it’s no different from normal stocks.

Warning Stock: If the abnormal situation of an Attention Stock persists, it escalates to a Warning Stock. This stage involves actual regulatory intervention and is also a signal that the stock is approaching Disposal Stock.

Disposal Stock: This is the most severe level of regulation. When a stock continuously meets the Attention Stock criteria for 3 to 5 trading days or satisfies any Warning Stock conditions, it directly enters the Disposal Stock category. At this point, the previously mentioned delays, circle storage trading, and prohibition of margin trading and securities lending are implemented.

In summary: Normal → Attention → Warning → Disposal, each step tightening regulation.

Practical Cases: What Happened After Stocks Became Disposal Stocks?

The subsequent trend of Disposal Stocks has no standard answer. Let’s look at two very different examples:

Case 1: V-Flow Electronics (6756) — Successfully Broke Out

In June 2021, V-Flow Electronics was classified as a Disposal Stock due to excessive gains. After entering the first disposal stage, the stock remained hot and was upgraded to the second disposal. During this period, the stock price accumulated a 24% increase and eventually broke free.

Case 2: Yang Ming (2609) — Fell into Deep Decline

Also in 2021, Yang Ming was listed as a Disposal Stock for similar reasons—excessive gains and high turnover. However, the situation worsened; at the end of July, it was reclassified as a Disposal Stock again, this time because of a “large decline over the past 6 days.” Since then, the stock has performed poorly for a long time.

These two cases illustrate that: Being a Disposal Stock does not necessarily mean the stock will rise or fall; the fundamental condition of the company is still crucial.

Does a Disposal Stock Still Have Investment Value? How to Judge?

Entering a Disposal Stock indeed has negative impacts: longer matching times, stricter payment methods, and often a sharp decline in trading volume, leading to deteriorated liquidity. Short-term traders will face increased transaction costs during this phase.

Does that mean Disposal Stocks have no chance at all?

Not necessarily. There is a market saying: “Disposal stocks tend to grow bigger the more they are restricted,” based on the logic:

• Some stocks classified as Disposal Stocks are often popular, strong stocks with many retail investors
• During the disposal period, trading difficulties make the chips more stable
• Once the disposal period ends and trading resumes, these “locked” stocks may restart upward

However, risks also exist: if during the disposal period, short-selling forces attack, it becomes difficult for investors to escape.

Should you buy Disposal Stocks?

The core idea is: Disposal Stocks are just a temporary abnormal trading state; they do not reflect the true quality of the company. Whether they are worth investing in should follow the normal stock analysis framework:

Fundamental Perspective:

• Does the company’s core business and competitiveness still exist?
• Are the financial indicators (revenue growth, gross profit margin, net profit) healthy?
• Is the company’s financial trend stable?

Chip/Ownership Perspective:

• What are the main funds doing? Buying or selling?
• Since margin trading and securities lending are prohibited during disposal, the movement of main funds is relatively “clean,” making it easier to identify.

Practical Suggestions:

1. Confirm stock price status: After entering a Disposal Stock, is the price consolidating sideways? If it starts to decline sharply, consider avoiding.
2. Assess valuation levels: Is the current price reasonable or undervalued? If undervalued, you might consider entering during the trading difficulties, waiting for future recovery.
3. Observe timing: Don’t rush to buy on the first day of disposal; wait 1-2 weeks to see if the stock stabilizes before considering entry.

Are Disposal Stocks Suitable for Long-term Holding?

There is no absolute answer; it depends on four factors:

1. Risk Awareness Disposal Stocks carry higher risks. Abnormal trading behavior may hide deeper issues like poor management or financial problems. If the company indeed has issues, long-term holding could be very risky.

2. Market Environment If the overall stock market is in a downtrend or macroeconomic downturn, Disposal Stocks are more likely to be hit hard. Conversely, in a rising market with a friendly economy, they might have better recovery chances.

3. Personal Risk Tolerance Investors who can accept large price fluctuations and have high risk tolerance may consider holding fundamentally stable Disposal Stocks long-term. Those preferring conservative strategies should avoid.

4. Confidence in the Company If you believe in the company’s long-term prospects and think it can overcome difficulties, being temporarily classified as a Disposal Stock is less concerning.

Differentiated Impact:

• Short-term traders: Most affected. No intraday trading, increased difficulty in executing trades, strategy disruption.
• Long-term investors: Less affected. Longer matching times and trading restrictions have limited impact on long-term holdings. Moreover, regulatory disclosure requirements may help better understand the company’s operations.

Final conclusion: Disposal Stocks are not forbidden zones; they are just a trading abnormality that requires cautious handling. The key is to base decisions on solid fundamental research and chip analysis, rather than blindly chasing or panicking out.