De-Listing featured image
30 Dec 2022
Dharmesh Patel

The ultimate facts about De-listing

A company's "listing standards" are the criteria by which it must abide in order to be listed on a stock market. The Stock Exchange and other exchanges each have their own listing requirements and policies. Companies that voluntarily delist from an exchange for failing to satisfy basic requirements are doing so on their own. Price is the most often used criterion. For instance, a corporation may face De-listing if its share price remained below $1 for an extended period of time. A firm may also seek delisting from a stock exchange voluntarily.

⮚ Pros and cons of public trading

After weighing the pros and cons of public trading, some firms decide to choose the private trading route. Typically, delisting requests arise when businesses are acquired by private equity groups and then restructured under the ownership of the new shareholders. In order to become privately traded, these corporations may seek delisting.

⮚ Merging companies

  • When two or more listed firms join to establish a new entity, the merging companies often seek delisting.
  • Although it is unlikely, delisted stocks may eventually be relisted on a major exchange.
  • To get back on the exchange's good side, the delisted firm would have to avoid bankruptcy, fix the problem that led to its delisting, and meet the exchange's requirements once again.

⮚ Bankruptcy and loss of money

Rather of relisting, delisted stocks typically become worthless when the firm that issued them goes bankrupt. There is a chance that a private investor will buy the firm if it is pushed into bankruptcy protection. Furthermore, the firm may reorganize and ultimately become public through an initial public offering, issuing new shares to new owners. Company continuity is unaffected by bankruptcy, although founding stockholders sometimes lose all of their money.

Stocks that have been delisted: tips for selling You should definitely sell your shares if you know there's a chance the firm could be considered as De-listing. The value of a firm drops due to involuntary delisting and the circumstances leading up to it, and if bankruptcy follows, you can lose all you invested. When a stock is delisted because of a merger or being taken private, shareholders have a short period of time to sell their shares before they are either converted into cash or swapped for shares of the acquiring firm at a set conversion rate.

⮚ Trading of delisted stocks

  • Although it is still possible to sell shares in an over-the-counter traded firm, finding buyers willing to pay your asking price may be difficult due to large bid/ask gaps.
  • In most cases, you may trade a delisted stock over-the-counter (OTC) just like any other stock.
  • However, certain brokerages do not allow for such trading. Even if a corporation goes bankrupt, a delisted stock may continue to trade over the counter for years.

⮚ Penny stock businesses

If you're thinking that delisted stocks are cheap, you should avoid falling into this trap. These stocks often trade at the same low prices as those of "penny stock" businesses, and the companies themselves are frequently in the midst of bankruptcy or severe financial difficulties.

  • Abandonment from the List : The company has reached the conclusion that it will voluntarily remove itself from trading on the exchange.
  • Many times, a company will continue to trade, but it will do so in the over-the-counter markets rather than the traditional ones. There are several reasons why a company could make the decision to delist itself, including the following:
  • Reduce the time-consuming and expensive process of complying with all of the rules and regulations. A company may opt to voluntarily delist itself from public trading if it determines that being publicly traded is no longer helpful to the company's bottom line.
  • When a company is purchased, the new owner will often take the business private. Buyers may be private equity firms or larger acquiring organizations with the intention of taking control of the target business via the purchase of a majority of the target company's outstanding shares of stock.

⮚ Shareholders’ Influence

De-listing and becoming private are two strategies that businesses may use to reduce the influence of shareholders and boards of directors, allowing them more time to find solutions to problems. It's possible that this will make people more nimble on their feet when it comes to making important decisions.

⮚ When a company gets delisted without their consent

Failure to comply with rules or maintain minimal financial criteria are two of the main causes for delisting. The capacity to maintain a certain share price, financial ratios, and sales volume are all examples of financial standards. A notice of noncompliance is issued by the listing exchange when a firm fails to satisfy listing standards. The stock market delists a business whose noncompliance persists.

Stock Reverse Split

  • Some corporations may do a reverse split of their stock in order to keep from being delisted. That means the price per share will increase by a factor of the number of shares combined.
  • If a company's share price is 50 cents per share and it conducts a 1 for 10 reverse split, it might increase that price to $5.00, removing the threat of delisting.
  • De-listing may have serious repercussions, since stocks not trading on a major exchange are more difficult for investors to learn about and access. This prevents the corporation from raising capital via the issuance of additional shares.

⮚ Financial Trouble

An involuntary delisting of a firm's shares may be an indication that the company is experiencing severe financial difficulties or that its leadership is incompetent. The cautions contained in the conversation ought to be taken very seriously. In the United States, delisted securities may still be traded in the over-the-counter market, unless the company that issued them has gone private or is in the process of liquidating.

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