Stocks suddenly "locked down"? A complete analysis of investment opportunities and risks in suspended stocks

If your stocks suddenly become impossible to buy and are restricted from margin trading, you are likely encountering a special market phenomenon: Disposal Stocks. These stocks often experience astonishing short-term gains but are accompanied by strange trading restrictions. So, what exactly is going on? Do they have any investment value?

Why Do Some Stocks Get “Stuck”?

Under the regulatory framework of the Taiwan Stock Exchange, when a stock exhibits abnormal volatility in a short period—such as a rise of over 100% within a month, daily turnover rates exceeding 10%, or trading volume suddenly multiplying several times—the exchange will take action.

These abnormal signals trigger a tiered control system. The exchange’s primary goal is simple: use trading restrictions to “calm” investors from frenzy, preventing market risks from spiraling out of control.

From Attention Stocks to Disposal Stocks: A Three-Level Progression

Abnormal stocks do not immediately become disposal stocks; instead, they go through a step-by-step regulatory process:

Level 1: Attention Stocks
This is the “yellow card warning” stage. Once a stock is classified as an attention stock, there are no restrictions on trading itself; the system merely issues a reminder to investors: “This stock is trading abnormally, please exercise caution.” Many investors remain unaware of this.

Level 2: Warning Stocks
If the abnormal conditions of the attention stock persist and worsen, the stock is upgraded to a warning stock, and regulatory measures begin to intervene.

Level 3: Disposal Stocks
When a stock meets the attention stock criteria for 3 to 5 consecutive trading days, it is added to the disposal stock list. This is where the real “trouble” begins.

Practical Operations of Buying and Selling Disposal Stocks: Everything Slows Down

Once classified as a disposal stock, trading is still possible, but the rules change. Depending on the severity of the disposal, there are two levels:

First Disposal: Only one transaction every 5 minutes

Stocks entering this stage shift from “real-time matching” to “matching once every 5 minutes.” More troublesome are:

• If a single buy order exceeds 10 lots or multiple orders total over 30 lots, a “circulation deposit transaction” (full payment upfront) must be performed
• Margin trading and securities lending are completely suspended
• Same-day offsetting is not allowed

Circulation deposit transactions mean the system “freezes” the funds there to ensure you have the capacity to complete the trade. In comparison, regular stocks allow T+2 payment (pay two days later), which greatly reduces capital efficiency.

Second Disposal: Nearly “frozen out”

If the stock’s volatility remains too intense and the first disposal measures fail to contain it, triggering abnormal standards again within 30 days, it enters the second disposal stage:

• Matching time extends to once every 20 minutes
• Regardless of the number of shares bought or sold, all transactions are forcibly circulation deposit transactions
• Trading volume usually drops sharply

At this stage, the stock becomes very difficult to trade. The disposal period is typically 10 trading days, but if the intraday offset volume exceeds 60% of total volume, the period extends to 12 trading days.

Do Disposal Stocks Rise? There’s a Market Saying: “The More They Close, the Bigger the Tail”

This saying is not unfounded. Take WeiFeng Electronics (6756) as an example: after entering the first disposal in June 2021, the stock remained hot, even entering the second disposal, and during the entire disposal period, the stock price still accumulated a 24% increase.

However, another example, Yang Ming (2609), is quite different. It was also classified as a disposal stock due to excessive gains. By the end of July, Yang Ming was again classified as a disposal stock, but this time because of a “large decline over the past 6 days.” Since then, its stock performance has been sluggish.

Why such differences? Mainly due to two factors:

Changes in Chip Distribution:
Disposal stocks are often stocks that previously surged in popularity. During disposal, liquidity worsens, making it difficult for retail investors to quickly enter or exit, which stabilizes the chips. Once the disposal is lifted, if the fundamentals remain good, these stocks may restart upward.

Involvement of Short Selling Forces:
During disposal, trading difficulties trap investors trying to exit. Once short sellers act, ordinary investors may find themselves unable to sell at all.

How to Judge if Disposal Stocks Have Investment Value?

Disposal stocks do not reflect the company’s quality; they are merely signals of abnormal market trading. Deciding whether to invest should follow normal stock analysis standards:

Fundamental Analysis

• Does the company have strong core competitiveness?
• Are financial trends stable?
• Are key indicators like revenue growth, gross margin, and net profit healthy?

Chip Distribution Analysis
This is actually an advantage of disposal stocks. Since margin trading and securities lending are suspended, the movement of major funds becomes relatively “clean,” allowing you to clearly see institutional buying or selling signals and judge whether to follow.

Valuation Judgment
Compare the current stock price with a reasonable valuation range. If the stock drops after being classified as a disposal stock, it may present an undervalued buying opportunity.

Technical Signals
Check whether the stock price during disposal is consolidating sideways or starting to decline sharply. Sideways movement may indicate accumulation of chips, while a sharp decline should be avoided.

Are Disposal Stocks Suitable for Long-Term Holding?

It depends on your investment style and risk tolerance:

Short-term traders should avoid:
Disposal stocks cannot be offset on the same day, and the matching intervals are long, directly impacting short-term trading rhythm and costs.

Long-term investors should be cautious but not necessarily avoid:

• If the company’s fundamentals are stable and you are confident in its future development, being classified as a disposal stock temporarily is not critical.
• During disposal, regulators require the latest financial reports to be publicly disclosed, which can help you stay updated on the company’s operations.
• Compared to short-term trading restrictions, long-term investors focus on the company’s growth over three or five years.

But avoid in the following situations:

• The company has poor management, financial problems, or major negative events
• The overall market is in a downtrend, and macroeconomic conditions are bleak
• Your own risk tolerance is limited

Final Advice

Disposal stocks are just a temporary market phenomenon, similar to stocks being restricted from daily limit-ups; they restrict trading behavior but not the company’s prospects. True investment decisions should be based on in-depth research of the company and market environment.

If you are optimistic about a company, being temporarily classified as a disposal stock might even present a better entry opportunity. But if the company itself has issues, no amount of chip analysis can save it. Use a rational analytical framework, avoid being swayed by market emotions—that’s the best approach when facing disposal stocks.