What is short squeeze that triggered Infosys ADR trading halt on NYSE — Explained

Trading in Infosys’ American Depository Receipts (ADRs) on the New York Stock Exchange (NYSE) was briefly halted on Friday (December 19) after the stock surged nearly 40% in early trading, an unusually sharp move for a large-cap IT services company with no company-specific announcement.

Market participants say the sudden spike was driven by a short squeeze, a technical market event that forced traders betting against the stock to rapidly buy shares, pushing prices sharply higher.

What is short squeeze?

A short squeeze happens when a stock that many investors have bet against (by short selling) suddenly rises in price instead of falling. This forces those investors to buy back the stock quickly to limit their losses, which in turn pushes the stock price up even more.

Step by step:

Short selling: An investor borrows shares and sells them, expecting the price to drop so they can buy back cheaper later and pocket the difference.

Price rises instead: If the stock price goes up, short sellers face losses.

Forced buying: Brokers may issue margin calls, forcing short sellers to buy back the shares immediately.

Feedback loop: This rush to buy pushes the price even higher, “squeezing” more short sellers out.

A short squeeze often causes rapid, extreme volatility in a stock, sometimes triggering trading halts on exchanges to stabilize the market.

What triggered the Infosys ADR short squeeze?

According to market reports, the Infosys ADR rally was sparked by a large institutional stock lender recalling a significant volume of lent shares.

This sudden recall:

-Shrank the available supply of Infosys ADRs in the lending market

-Caught short sellers off guard, forcing them to rush into the open market

-Created a supply-demand imbalance in a stock that typically sees low daily trading volumes

-With short sellers scrambling to cover positions in a thinly traded ADR market, prices surged rapidly.

Why the NYSE halted trading

The extreme intraday volatility triggered the NYSE’s Limit Up–Limit Down (LULD) mechanism.

Under LULD rules:

-Trading is automatically paused when a stock moves too far, too fast

-The halt allows information to disseminate evenly

-It helps prevent disorderly or panic-driven trading

Infosys ADRs were halted after the stock jumped more than 38% in minutes, a move considered abnormal without any fundamental news.

What are ADRs?

ADRs are American Depositary Receipts.

In simple terms, ADRs allow US investors to buy shares of foreign companies without trading directly on foreign stock exchanges.

How ADRs work

-A US bank buys shares of a foreign company.

-The bank issues ADRs that represent those shares.

-ADRs trade on US stock exchanges (NYSE, Nasdaq) or over-the-counter, just like US stocks.

-They are priced in US dollars, and dividends are paid in dollars.

Why companies use ADRs

-To access US investors

-To increase liquidity and visibility

-To avoid the complexity of listing directly in the US.

Why investors buy ADRs

-Easier way to invest in non-US companies

-No need to deal with foreign currencies or markets

-Regulated under US market rules