When a stock gets delisted that means it is removed from an exchange. This means the stock is no longer traded on that specific stock exchange. Some companies choose to delist themselves as part of a goal they have set or, which is the more common reason, they are forced too because the stock no longer satisfies the minimum requirements to be listed. One of the main reasons is a stock listing under $1 per share for a period of time. If delisted, stocks can be bought and sold Over-the-Counter (OTC). We will cover this topic at a later date.
Types of Delistings
- Voluntary Delisting
With this type, the company is choosing to remove itself from the exchange. Sometimes the company will continue to trade but doing it over-the-counter (OTC). There are many reasons to do this, here are a few.
- Cost reduction: There are material costs associated with complying with rules and regulation. A voluntary delisting may occur when a company determines that there is no longer a financial benefit to being publicly traded.
- A buyout: In a buyout, the purchasing entity often takes the purchased company private. Purchasing entities can include private equity firms or larger acquiring companies that will be purchasing most or all of the purchased company’s stock.
- Faster decision-making: By delisting and going private, companies can reduce shareholder and board input. This can make them more nimble in making big decisions.
2. Involuntary Delisting
With this type, the company has no choice, sometimes called a forced delisting. We explained this above, but to recap, the company failed to meet the exchange’s requirements and as a result were delisted by the exchange.
What Happens to Shares When a Stock is Delisted?
If a company is delisted off an exchange, you can still buy and sell but it will be over-the-counter (OTC). In most cases you will have to use a different exchange that still has the company listed, however, the market is less likely to be as liquid and can be hard to sell your shares.
Shareholders should carefully evaluate delisted stocks, as moving off an exchange may mean that the company is in financial trouble and may be facing bankruptcy soon.
If the stock ceases to be publicly traded, shareholders may be either bought out or have their shares restructured to participate in the private equity holding of the company.
Can a Stock be Relisted?
It is a bit rare but possible for a company to become relisted. In order for this to happen, the company in question would have to rectify any and all reasons and meet the requirements of the exchange. It would have to resolve any financial situations such as bankruptcy for example and provide all necessary documentation to be compliance once more.