Delisting

What Is Delisting?

Delisting is the withdrawal of listed securities from a stock exchange. Delisting typically indicates that a stock has failed to fulfill the exchange’s standards.

Deeper Definition

Before a company may be listed on an exchange, it must fulfill specific criteria known as “listing requirements”. Each exchange, such as the New York Stock Exchange (NYSE), has its own set of listing rules and regulations. Companies that fail to fulfill an exchange’s minimal requirements will be delisted involuntarily. The most prevalent criterion is cost.

A company’s delisting can be voluntary or involuntary, and it generally occurs when it ceases operations, declares bankruptcy, merges, fails to satisfy listing standards, or tries to go private.

When a cost-benefit analysis reveals that the expenses of being publicly traded outweigh the advantages, some firms prefer to become privately traded. When corporations are bought by private equity firms and reformed by new owners, delisting requests are common. These corporations can request to be delisted and traded privately. In addition, when listed firms consolidate and trade as a single entity, the formerly independent companies request delisting willingly.

Violations of rules and failure to satisfy minimum financial criteria are among the causes for delisting. The capacity to maintain a minimum share price, financial ratios, and sales levels are all examples of financial standards. The listing exchange provides a non-compliance alert when a firm fails to follow listing standards, and the exchange will delist the company’s stock if non-compliance persists.

Some corporations will reverse split their stock shares to avoid delisting, which effectively merges many shares into one and multiplies the share price.

Delisting Example

For example, if a company’s stock price has been below $1 per share for several months, it may face delisting. Alternatively, a firm might apply to be delisted voluntarily.

Involuntary delistings are frequently a sign of a company’s financial distress or weak corporate governance. An exchange’s warnings should be taken carefully. For example, the apparel store Aéropostale Inc. was delisted for non-compliance in April 2016, five months after receiving a warning from the NYSE. The firm declared bankruptcy in May 2016 and began trading over-the-counter (OTC).