What Happens If a Stock Is Delisted?

Stock delisting occurs when a company’s shares are removed from trading on a major stock exchange. Delisting can happen for various reasons, and it signifies a significant change in a company’s status within the financial markets. For investors, understanding this process is important as it impacts how and where shares can be traded.

Reasons for Delisting

Companies can be delisted from major exchanges for several reasons, broadly categorized as involuntary or voluntary. Involuntary delisting occurs when a company fails to meet the exchange’s continued listing standards. These standards include maintaining a minimum share price, such as falling below $1.00 per share. Companies must also meet requirements related to market capitalization and shareholder equity.

Exchanges also enforce rules on corporate governance and timely financial reporting. Failure to file annual or quarterly reports with regulators, like the Securities and Exchange Commission (SEC), can lead to delisting. Events such as bankruptcy filings or engaging in operations contrary to the public interest can also trigger an involuntary delisting. A company may voluntarily delist its stock if it decides to go private, merges with another entity, or is acquired. Some companies also choose to delist if they determine that the costs and regulatory burdens of being publicly traded outweigh the benefits.

Trading After Delisting

Once a stock is delisted from a major exchange, it often transitions to trading on over-the-counter (OTC) markets. These decentralized markets operate through networks of broker-dealers rather than a central exchange. The OTC Markets Group organizes these securities into three primary tiers: OTCQX, OTCQB, and OTC Pink, based on the level of public information and financial reporting provided by the companies. Trading on OTC markets involves less liquidity and wider bid-ask spreads compared to major exchanges, making it harder for investors to buy or sell shares at desired prices.

The OTCQX is the top tier, featuring established U.S. and international companies that adhere to higher financial standards and transparency. The OTCQB, or “Venture Market,” is the middle tier for early-stage and developing companies. The OTC Pink market has the fewest requirements, offering minimal or no public financial disclosure, and can include companies in bankruptcy or with questionable operations, making it the most speculative tier. Trades on these markets occur through broker-dealer networks.

Shareholder Ownership and Information

Delisting does not mean that shareholders automatically lose their ownership in the company. Shareholders still retain their shares and their rights as owners, including voting rights and the potential for dividends. The practical implications for shareholders can be significant. Accessing company information may become more challenging, as delisted companies may not be subject to the same stringent reporting requirements as those on major exchanges.

While companies that move to OTCQX or OTCQB tiers may still provide regular financial disclosures, companies on the OTC Pink market might offer very limited information. Investors may need to rely on the company’s own website or direct communications for updates, though these might be less frequent. If a company is delisted due to bankruptcy, the value of shares can be severely diminished, as shareholders are typically among the last to be repaid after creditors. In cases of voluntary delisting, such as a merger or acquisition, shareholders might be offered a buyout or receive shares in the acquiring company.