When a stock is removed from a stock exchange, it is considered delisted. This can be a voluntary action initiated by the company or an involuntarily action initiated by the exchange.
What Does It Mean When a Stock is Delisted?
To be delisted means to be removed from an exchange, meaning the stock is no longer traded on that specific stock exchange. A company can elect to delist its stock, pursuing a strategic goal, but more commonly companies are forced off a stock exchange because the stock no longer satisfies certain minimum requirements. A stock dropping below $1 per share for an extended period of time can be one reason for delisting.
Note: Delistings can represent either positive or negative developments for stocks. Investors should be aware of the company's financial situation in order to determine what course of action to take following a delisting.
What Happens When a Stock is Delisted?
When a company initially applies to an exchange, it has to meet certain listing requirements. It must further maintain compliance with these requirements to remain on the exchange. If a company fails to meet these requirements, it may be put on probation. Companies that are on probation can trade on the exchange for a limited period of time while they attempt to remedy any issues. In some cases they are identified with a “BC” after the stock symbol to indicate that they are currently out of compliance with exchange requirements.
Companies that are out of compliance are notified by the exchange and usually have 10 days to respond or the exchange will proceed with delisting. That would represent an involuntary delisting. Stocks may trade Over-the-Counter (OTC) following a delisting.
Types of Delistings
There are two types of delistings:
1. Voluntary Delisting
In a voluntary delisting, the company is choosing to remove itself from the exchange. Often the company will continue to trade but does so in over-the-counter markets. There are a number of reasons that a company may choose to delist:
- 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
This is also called a forced delisting. It occurs when the stock exchange forces the company off of the exchange because it no longer meets the minimum regulatory requirements of the exchange. Violations could be related to not maintaining a minimum stock price, minimum market capitalization, or failing required document filings.
If a stock is delisted, shares may continue to trade over-the-counter on the OTC bulletin board (or possibly on an overseas market). Shareholders can still trade the stock, though it is likely that the market will be less liquid.
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. Sometimes, shareholders are offered warrants, bonds, and preferred shares when a company moves from the public to private status.
Can a Stock be Relisted?
It is possible, albeit rare, for a delisted stock to become relisted later on a major exchange. In order to do so, the company would have to rectify any and all reasons that it was delisted in the first place. This would mean it would have to solve financial issues and avoid bankruptcy as well as file all necessary documents to become compliant again.
Historical Examples of a Delisted Stock
Burger King is an example of a company that was delisted, relisted, and delisted again. The fast-food chain voluntarily delisted in 2010 from the New York Stock Exchange. This delisting was prompted by a private buyout by 3G Capital. The private entity was relisted two years later and traded for some time until it merged with the coffee house chain, Tim Hortons. The merger created a new company, Restaurant Brands International (QSR) that now trades on the Toronto Stock Exchange.
A more recent example of a delisted stock is Twitter. Twitter stock was delisted from the New York Stock Exchange on November 8, 2022 after the company went from being a public to a privately owned company.
Bottom Line
A stock can be removed from the exchange and delisted either voluntarily or involuntarily. When this happens, the stock either moves to private status and is restructured or it trades over-the-counter.
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Certainly! Delisting stocks from an exchange is a complex process with various implications. To begin, meeting listing requirements is crucial for a company's presence on an exchange. When these prerequisites aren't maintained, probation or delisting follows. There are voluntary and involuntary delistings, each with distinct reasons and outcomes.
Voluntary Delisting: Here, a company opts to remove itself from the exchange. Reasons could include cost reduction, buyouts, or a desire for faster decision-making. The company might continue trading but in over-the-counter markets, often due to the belief that there's no longer a financial benefit to staying publicly traded.
Involuntary Delisting: This occurs when a stock no longer meets exchange regulations, like minimum stock prices or filings. Companies given notice usually have a brief window to respond; otherwise, they face delisting. Shares might still trade OTC, but the market's liquidity typically diminishes.
Post-delisting, shareholders must scrutinize the company's financial health. Bankruptcy might loom, prompting shareholders to consider restructuring offers involving warrants, bonds, or preferred shares.
Relisting Possibility: While rare, a delisted stock can return to a major exchange. For this, the company must resolve issues that caused delisting, maintain financial stability, and comply with necessary filings.
Historical Examples: Burger King voluntarily delisted in 2010 for a private buyout, then relisted, and eventually merged with Tim Hortons. Twitter's recent delisting in 2022 shifted it from public to private ownership.
Delistings are nuanced, impacting shareholders, company governance, and market dynamics. Understanding a delisted stock's potential trajectory post-exchange removal is crucial for investors assessing their holdings' future.
Regarding the article you provided, it thoroughly covers delistings and their ramifications. It delves into voluntary and involuntary delistings, reasons behind them, implications for shareholders, potential for relisting, and historical instances like Burger King and Twitter. The piece rightly advises investors to consider a company's financial standing post-delisting for informed decision-making.
