What happens when a stock is delisted?

Public companies must meet certain requirements in order for their shares to be traded or listed on stock exchanges. New York Stock Exchange or Nasdaq. If a company fails to meet these requirements, its stock may be delisted.

For example, in 2019, shares of server maker Super Micro Computer (SMCI) were delisted after it failed to meet certain financial reporting deadlines. Nasdaq approved the company’s application for relisting in early 2020, but the risk of relisting in November 2024 emerged after Super Micro missed reporting deadlines once again and its auditor resigned.

Here’s what investors need to know about stock delistings.

What is delisting?

remove from list, company stock It is issued on an exchange such as NYSE or Nasdaq. Delisting may occur for a few different reasons. This may be a result of the company going private, declaring bankruptcy, merging with another company, or failing to meet the listing requirements of the stock exchange.

If a company’s shares are delisted, shareholders continue to own their shares in the company but the stock can be traded over the counterThis may result in reduced liquidity and reduced transparency for investors.

How delisting works

Exchanges have certain requirements that companies must comply with in order to be listed. If a company fails to meet these standards, it may face delisting.

Typically, the exchange sends a notice to the company that it has not complied with the exchange’s listing requirements, which serves as a warning before actual delisting. The company may be given a period of time to comply with stock exchange rules, but otherwise its shares will be delisted.

Companies can apply for relisting after meeting the exchange’s requirements.

Reasons for delisting a stock

Each exchange has its own listing requirements, but these are some of the common reasons a company may face delisting:

• Failure to meet financial requirements: Exchanges have certain financial requirements, such as minimum net income or equity capital levels that companies must meet to be listed.

• Failure to submit financial reports on time: Companies must meet financial reporting deadlines when applying quarterly and annual reports.

• Bankruptcy: If a company files for bankruptcy, its shares may be delisted from the stock market.

• Fake: Legal issues or strong evidence that a company has committed accounting or financial fraud can lead to delisting.

• Failure to meet trade requirements: Exchanges require a company’s shares to meet certain price and volume requirements over a certain period of time.

• Poor corporate governance: Failure to meet certain governance requirements, such as having an adequate audit committee or independent directors on the board, may lead to delisting.

What should investors do if the stock they own is delisted?

If you have shares in a delisted company, you should try to find out why the shares were delisted. While some of the reasons for delisting may be tolerated, other reasons, such as fraud, may be more concerning.

You should also know that delisting does not affect the number of shares you own or whether you still have shares in the company, only where those shares are traded. Shares delisted from the stock exchange may continue to be traded over-the-counter, which may reduce liquidity and result in reduced transparency in the company.

Delisted shares may come under pressure due to forced selling by institutional investors who are required to hold shares listed on certain exchanges. Delistings may also result in a company being removed from certain indices. S&P 500This can lead to sales funds that follow these indices.

In conclusion

Delisting is the process of removing a company’s shares from an exchange such as the NYSE or Nasdaq. Delistings can occur for a variety of reasons; However, investors should be most concerned if the cause involves potential fraud, bankruptcy, failure to meet financial reporting requirements, or other legal issues. A company’s shares may continue to be traded over-the-counter after delisting.