If a stock delists because the company is acquired, shareholders will typically receive cash or shares in the new company. However, if the company goes bankrupt, shareholders may not receive anything.
The delisting of a stock is the process by which a company’s stock is removed from a stock exchange. This usually happens when a company is acquired, goes bankrupt, or if it fails to meet the requirements of the exchange.
When a stock delists, shareholders will no longer be able to trade the stock on that exchange.
If you own shares of a company that is being delisted, it’s important to understand what your options are.
Delisting means the removal of a stock from an exchange. Generally, delisting refers to the removal of stock from major exchanges such as the NASDAQ and the NYSE.
A stock delists when either the exchange management or the company removes it from the exchange. The stock still exists, and the shareholders still own their shares and can receive dividends after delisting.
Exchanges delist stocks for many reasons. Most exchanges have minimum requirements for stock listing. The NASDAQ Global Market, for example, requires stocks to maintain a minimum share price of $4. NASDAQ also requires a company to have 1.1 million public shares with a market capitalization of at least $8 million.
Stocks that do not meet the minimum requirements will be delisted. The most common reason stocks are delisted is low share value. The NASDAQ will delist stocks that trade for under $4 for 30 days.
Exchanges can also delist stocks if there are allegations of fraud, or other illegal activities, at a company. The NASDAQ delisted Luckin Coffee in 2020 because of allegations of fake sales figures.
What Happens When a Stock is Delisted?
If a stock does not meet listing qualifications, exchange management will give the company some time to meet the requirements, usually 80 to 180 days. The exchange will remove the stock at the end of that period if requirements are not met.
You can buy, trade, and sell delisted stocks. However, you will not be able to trade delisted stocks through most brokerages and trading platforms. Most brokerages and platforms will not trade delisted stocks because they consider such shares high risks.
Instead, you will have to trade delisted stock through the penny or the over-the-counter stock market. In the United States, the penny stock market comprises the Over-the-Counter-Bulletin Board (OTCBB) and the Pink Sheets.
The OTCBB is an electronic trading service for unlisted stocks offered by the Financial Industry Regulatory Authority (FINRA). The only requirement for OTCBB trading is that the company be current in its financial statements.
The Pink Sheets is a quotation service for penny stocks. Most investors consider Pink Sheets too risky because it lists stocks not registered with the Securities and Exchange Commission (SEC).
Since it ignores the SEC, Pink Sheets does not require companies it quotes to provide current financial statements. Thus there is no way to know if Pink Sheets companies make money.
Delisting can mean the end of a company. Sometimes creditors will call in a delisted company’s loans, leading to bankruptcy. However, companies can delist themselves and go private by pulling stock from exchanges.
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What Happens When a Foreign Stock is Delisted?
A foreign stock delisted from US exchanges will usually move to the OTCBB or the Pink Sheets like a delisted American stock. When the NASDAQ delisted the Chinese company Luckin Coffee, Luckin’s shares kept trading on the over-the-counter market in the US.
Exchanges can delist foreign stocks for other reasons. The New York Stock Exchange tried to delist three companies with alleged ties to the Chinese military in 2020.
The NYSE took action after former President Donald J. Trump (R-Florida) issued an executive banning Americans from investing in those stocks. It is not clear if Trump’s order was legal, so the NYSE soon relisted those stocks.
If you’re a U.S. investor, you may have noticed that some foreign stocks trade on U.S. exchanges while others don’t. For example, Alibaba (BABA) shares trade on the New York Stock Exchange, while Baidu’s (BIDU) American depositary receipts are listed on Nasdaq.
There are several reasons why a foreign stock may or may not be listed on a U.S. exchange, but one possibility is delisting.
Delisting occurs when a stock is no longer traded on an exchange. In the case of foreign stocks, this can happen for a variety of reasons, including:
- Another firm has acquired the company
- The company has filed for bankruptcy
- The company has been delisted from its home exchange
- The company has failed to meet the exchange requirements (e.g., the minimum number of shareholders, minimum share price, etc.)
If a foreign stock is delisted from a U.S. exchange, investors may still be able to trade the stock via over-the-counter (OTC) markets or pink sheets. However, trading liquidity may be low, and it may be more difficult to find information about the company. As such, investing in delisted stocks can be risky and is generally not recommended for most investors.
Have you ever invested in a foreign stock that was delisted? What was your experience? Let us know in the comments below.
What Happens When a Stock I own Is Delisted?
If your stock is delisted, you will still own the shares. However, you will not be able to sell those shares through most brokerages and platforms such as Robinhood.
You will have to sell delisted shares through the over-the-counter or penny stock market. Selling delisted shares can be difficult because most stock analysts do not research delisted stocks.
What Happens to My Investment when a Stock is Delisted?
If a stock is delisted, the over-the-counter market will determine the share price. Delisted stocks usually trade for low prices. The bankrupt retailer JC Penney was trading for 6₵ a share before going private.
If a delisted company declares bankruptcy, the bankruptcy court can award shareholders proceeds from the sale of liquidated assets. However, the law requires the court to pay creditors and preferred stockholders first.
What Happens to my Shares when a Stock is delisted?
You will still own your shares if your stock delists. If the delisting was involuntary, you can keep the shares or sell them through the over-the-counter market.
If the company voluntarily delists or goes private. The management will buy your shares. Many companies delist when somebody buys them out. In those cases, the buyer will usually pay a higher-than-market price for the shares.
For example, Elon Musk offered $54.20 a share in his Twitter (TWTR) buyout offer in April 2022. Such buyout offers can be lucrative for shareholders.
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What happens to Options if a Stock Delists?
Exchanges can stop trading stock options if a stock delists. Exchanges may allow closing-only transactions for existing stock options. That means people who own an option can make one transaction after the stock delists. The options holder can sell the option before it expires.
The options exchange can stop all trading in a delisted stock’s options. If you have options in a delisted stock, you will have to check with the exchange to see if the options are still valid.
Options are derivative contracts that give the holder the right, but not the obligation, to buy or sell an underlying security at a set price on or before a certain date. When a stock delists, it is removed from a major exchange and can no longer be traded publicly. So what happens to options when this occurs?
There are two types of delisting: voluntary and involuntary. In a voluntary delisting, the company decides to remove its shares from trading on an exchange. This is usually because the company is being acquired or taken private. An involuntary delisting occurs when the company fails to meet the exchange’s listing requirements, such as minimum share price or the number of shareholders.
If you hold options on a stock that is delisted, you may still be able to exercise your options, depending on the type of delisting and the exchange where the options are traded. For example, if a stock is delisted from the New York Stock Exchange (NYSE) but continues to trade on the OTC market, you can still exercise your options. However, if a stock is delisted and ceases trading altogether, you will no longer be able to exercise your options.
Summary
If you have questions about what will happen to your options in the event of a delisting, it’s best to speak with your broker or financial advisor. They will be able to give you specific information about your situation.
Any stock can be delisted. All stock investors need to understand what delisting is and how it can affect them.
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