Stock Delisting Process
Stock delisting is the painful process of removing a company that is traded on the NYSE, NASDAQ or other exchange from public trading. Instead, the company is traded "over the counter" -- or OTC for short -- by specialist brokerage firms with less access to large investors. Companies are forced to take this action when they have an extremely low share price, have a dramatic reduction in sales or declare bankruptcy. The process can be quite difficult for the company's management and shareholders.
As a company's sales and governance processes begin to falter, the exchange will being to issue warnings. The NASDAQ, for example, will issue the warning in writing. At that point, the company has four days to inform its shareholders of the warning. They must also file a form called an 8-k with the Securities and Exchange Commission, which officially acknowledges the warning from the exchange. This typically has a dramatic negative effect on the stock price as investors flee the stock.
Some companies choose to self-delist rather than wait for the exchange's determination, because they may feel this allows them better control of the reaction of investors and hopefully allows them to maintain some support. Each exchange has its own continuing listing requirements as well. For example, the NYSE requires among other things at least 400 shareholders, a $4 stock price and a $40 million total value for the company. The exchange takes these requirements into account when determining whether a company should be delisted or not.
Each exchange has an appeals process for delisting. The NYSE has a 25-day review period to consider all of the company's finances and plans for growth. The exchange General Counsel will make a final decision on the delisting at the end of the review period. The General Counsel then immediately informs the company in writing of his or her decision.
If the company's appeal is denied, the company is moved off the exchange as soon as is practical and on to an OTC listing. The exchange then files a Form 25 to the SEC that formally acknowledges the change. The company immediately informs all shareholders of the delisting as well. Shareholders can choose to sell -- at the inevitably lower price -- or maintain their ownership of the company. On the final day of the public listing, the shares stop trading and are transferred to new brokerage accounts to hold for the shareholders.
Kathy Zheng is a personal financial planner. She holds a Bachelor of Arts in economics and is certified as a level 1 financial adviser.