Stock Delistings- here are some facts-
To stay listed on the Nasdaq, a stock must meet these requirements-
1. Share price of at least $1
2. Have at least 400 shareholders
3. Shareholder equity of at least 10 million
market value of at least $50 million
total assets and total revenue of at least $50 million each.
4. SEC compliance on filing of necessary reports on time.
Steps to a delisting–
1. A warning from the exchange for being out of compliance for one of the aforementioned requirements.
2. A time period for the company to comply with the requirements of the exchange.
3. If the requirements are not met by the company’s deadline, then the stock will be delisted.
4. There will be an announcement of the delisting date for the stock.
5. The date of delisting is when the stock is actually delisted from the exchange.
What it means for shareholders-
YOUR STOCK STILL EXISTS AND YOU STILL OWN THE SHARES. The time period between the announcement of the delisting and the actual delisting allows for investors to divest if they wish. However, there are other options. Read below for further detail.
1. If the company falls out of compliance for the share price or amount of shareholders (#1 and 2 on the requirements list above), the stock can be continued to trade OTC (over-the-counter), and there really isn’t any interference with the trading process except now the shares are traded through the OTC which is decentralized dealer market and not an exchange which is regulated. With this comes the negative stigma of being delisted, and, of course, the price could possibly go down even more in the OTC. Fundamentally, nothing changes with the company, but the companies who are delisted due to their price falling below the $1 or having a smaller amount of investors probably could not raise a lot of capital in the first place when their stock had been listed on the exchange. There was not enough retail interest in it to begin with.
2. If a company is delisted due to filing for bankruptcy (issues with market cap, market value, total assets or revenue which is #3 on the list of requirements in the list above), it is possible that shareholders stock will plummet because the stock no longer has any value. Shareholders will still own the shares, but there are most likely no buyers due to the news of the bankruptcy. The original stock does continue to trade over-the-counter, however, and the stock ticker is given a Q at the end to signify that they were delisted for filing bankruptcy. There have been companies who have gone bankrupt and come back and they issue NEW stock. In the case of delisting due to bankruptcy, obviously there HAS been a drastic change to the company’s fundamentals. These companies definitely will not be able to raise more capital, and to save themselves, they often go through a period of reorganization and recovery. Not all companies will liquidate and close. It will definitely be difficult for them to raise capital, so the necessity for reorganization and recovery is crucial if the company wants any chance at rebounding.
3. If a company does not comply with the SEC and their expectations for filing of reports, then the stock can become delisted from the exchange and continue to be traded OTC. In the case of multi-national stocks which trade on different stock exchanges in multiple countries, the shareholders still own the stock from the exchange on which it is being delisted and can continue to trade it through OTC, sell during the time period between the delisting announcement and actual date of delisting from the original exchange, and/or buy the same stock through another foreign exchange (which in itself has certain regulations for its own country…varies by country in which you would have to do that research). Fundamentally, nothing immediately changes about the company as they continue on with business as usual, except now it will be more difficult for them to raise capital since they have been removed from a major exchange. They also have the negative stigma of being delisted which may initially be a negative catalyst on their share price. However, being listed on multiple exchanges is a hedge for that company to reduce the risk of a negative price movement. Not all brokers allow investors to buy on foreign exchanges, but some do.
In short, a delisting of a stock is no fun for stockholders, but it is not necessarily the end of a company’s success. Knowledge is power. Stay up-to-date on news and do your own due diligence. Many times fear is caused by the unknown. Do not rely on any one source. Often times, there are hidden agendas within media. Take control of your portfolio because you are the one who cares the most about what happens to your own money.
My sources were: Stock Moe, SEC, PCAOBUS, CNBC, Motley Fool, CFO
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