Delisting is the removal of security that is listed on a stock exchange and therefore cannot be traded on the stock exchange for time being; It may be an involuntary decision that is a forced order by the regulators due to non-compliance of rules or norms of listing on stock exchange or a voluntary decision by the company which is when a company ceases its operations, any mergers or bankruptcy exists or company converts itself into a private company.
Meaning of Delisting Stock
Delisting means the company’s shares are no longer traded in the stock exchange and it usually happens in the case of a merger or the company has filed for bankruptcy or the company shares are no longer able to trade in the market or the company has decided to take itself private. Delisting of the securities can also happen in the case if the company has not met the listing requirements which are mandatory for listing or keeping the stock traded in the open market.
Types of Delisting
There are two types that take place in the market first is involuntary and the second one is voluntary delisting.
#1 – Involuntary Delisting Stock
These shares take place when the company does not want to delist itself but have to as per the laws and regulations of the local law prevailing in the country in which the company is having its operations. It takes place when the company does not meet its minimum financial standards. Financial standards involve that the company has been making constant losses for three straight years, the company is not able to meet its minimum share price financial ratios or sales level are below the minimum.
#2 – Voluntary Delisting Stock
These shares take place when the company does not want its shares to be traded in the security exchange. The company wants to be a private company in nature. However, the delisting of shares is generally seen as a tough time for the company who is operating their business and it seems that the company does not wants its financial statements to be public anymore.
Delisting Stock Case Study
According to the listing requirements of NASDAQ if the company share is trading below $1.00 for 30 consecutive days, then the company needs to delist its shares from the stock exchange. Company XYZ has been trading below $1.00 for more than 28 days.
Solution – If the company trades below $1.00 in the 31st day then the stock exchange will send a notice for non-compliance to the company stating that the company needs to delist its shares and after 180 days of the notice to the company if the stock still trades below the discussed amount then the exchange will delist the issue. The exchange suspends trading in that security and notifies the issuer and the Securities and Exchange Commission (SEC) in writing and releases a press release
Every exchange is free to set their own listing norms and is set to set a minimum limit price for the stock exchange to delist the shares
- The company does not have to publish its annual reports or does not need to reveal its shareholding patterns etc. to the public as the company has become private in nature
- The company does not need to comply with the minimum listing criteria regulation of the security exchange board.
- The listing expenses and the annual trading cost of the company is saved when the company decides to delist itself.
- Delisting of shares from the stock exchange also reduces the risk of the takeover of the company in the capital market and the promoters can retain their ownership and shareholding
- The company does not have to bear the systematic or the market risk when it delists its shares and is safe from the market speculation also