What is Delisting?
Delisting is the process by which a company’s shares are removed from listing on an organized stock exchange, such as the New York Stock Exchange (NYSE) or NASDAQ. This can happen voluntarily, prompted by the company’s own decision, or involuntarily, typically due to failure to meet the exchange’s listing requirements.
Types of Delisting
Voluntary Delisting: A company’s management may decide to delist its shares for several reasons:
- Merger or acquisition.
- Low trading volumes.
- To go private and restructure.
- Regulatory and compliance cost savings.
Involuntary Delisting: When a company fails to adhere to the listing standards set by the exchange, it might face delisting. Reasons include:
- Declining market capitalization below the required threshold.
- Financial instability, such as insolvency or bankruptcy.
- Not filing periodic reports or failing to maintain adequate levels of operation.
Examples of Delisting
- Enron Corporation: Enron was delisted from the NYSE in 2001 following a major accounting scandal and subsequent bankruptcy.
- Kodak: Eastman Kodak voluntarily delisted from the NYSE in 2020 as part of restructuring plans during financial struggles.
- Luckin Coffee: In 2020, this Chinese chain was involuntarily delisted from NASDAQ after admitting to fabricating sales figures.
Frequently Asked Questions (FAQ)
Q: What happens to shares after delisting?
A: After delisting, shares might continue to trade over-the-counter (OTC) in the less regulated market, though this usually results in diminished liquidity and lower trading volumes.
Q: Can a delisted company relist?
A: Yes, a company can relist once it meets all necessary requirements and undergoes the application process of the exchange.
Q: How does delisting impact shareholders?
A: Shareholders can face reduced liquidity, potential loss of investment, and difficulties in trading their shares at fair market value.
Q: What are OTC markets?
A: OTC markets are decentralized markets where securities not listed on formal exchanges can be traded. They are typically used by smaller or financially distressed companies.
Q: Is delisting always negative?
A: Not necessarily; voluntary delisting might be a strategic move to cut costs or manage finances better, ultimately benefiting long-term shareholders.
Related Terms
- Stock Exchange: A marketplace where securities, commodities, derivatives, and other financial instruments are traded.
- Securities: Financial assets that can be traded, such as stocks, bonds, and options.
- Market Capitalization: The total market value of a company’s outstanding shares.
- Over-The-Counter (OTC): A decentralized market where trading of securities is done directly between two parties without a central exchange or broker.
Online References
Suggested Books for Further Studies
- “The Securities and Exchange Commission: A Coursebook for the SEC Processes” by Marc I. Steinberg.
- “Takeover: Contesting the New Market Economy in America” by Stephen Amberg.
- “Understanding Stock Market Trades: A Guide to Rules and Practice” by Richard Harris.
Fundamentals of Delisting: Corporate Governance Basics Quiz
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