What is Delisting of Shares
5paisa Research Team
Last Updated: 16 Sep, 2024 10:32 AM IST
Want to start your Investment Journey?
Content
- Introduction
- What is Delisting of Shares?
- Why Does Delisting of Shares Occur?
- The Company Does Not Meet The Stock Exchange Criteria
- The Company Applies for Bankruptcy
- Mergers / Acquisitions
- Conclusion
Introduction
Delisting a stock isn't an extraordinary phenomenon - it isn't even rare, in fact. There are times when a company just can't continue to trade its shares any longer, and that's when delisting of its stock happens. This data by StockAnalysis shows that in 2020, 70 of the major US companies got delisted from the US stock exchanges.
The reasons for a company's delisting can be many - the major one being that it fails to meet the listing criteria stipulated by the stock exchange of the region/country. A plethora of other factors are at play here, as well - mergers, for example. When the ownership of a company changes, it cannot trade under the same share name it used to.
Whatever the reason for delisting, it never has any good news - neither for the company itself nor for its shareholders. Let's discuss the meaning and implications of delisting in detail, and try to understand how to avoid investing in such stock.
What is Delisting of Shares?
Delisting of shares occurs when listed security is removed from the roster/trading boards of a stock exchange. In simpler words, a company releases its shares to be traded in the stock market when it meets certain listing criteria prescribed by the stock exchange. When that company pulls its shares out from the listing - whether voluntarily or involuntarily - traders can no longer perform any operations with those shares. The stock exchange removes that stock from the trading list.
Delisted shares can still be traded in the Over The Counter network through dealers other than the centralized exchange bodies. However, a delisted stock may not necessarily fetch a good value in return - it may even become worthless.
So...why does delisting occur? Let's see a few reasons.
Why Does Delisting of Shares Occur?
Delisting of a company's shares may be voluntary or forced by the situation or a consequence. There are several reasons that are based on the health of the company, the ownership, share value, etc. that may hint at a delisting threat. Here are a few reasons a company may get delisted.
The Company Does Not Meet The Stock Exchange Criteria
Every stock exchange - whether Nasdaq, BSE or any other, for that matter - has its own set criteria for companies to qualify in order to be eligible for listing on its trading boards. For example, BSE prescribes that the minimum market capitalization for a company needs to be ₹25 Crores, in addition to several other requirements. Similarly, Nasdaq has its own criteria - like the minimum share value shouldn't be lower than a dollar for more than 30 days, among others.
Pro Tip: In order to avoid parking your money in shares that would inevitably be delisted, always follow the statements that the companies release regarding their credentials like market cap value, shareholder percentage, minimum revenue, etc. and tally them with the stock exchange standards regularly. If you see a non-compliance happening, immediately work out an escape plan.
The Company Applies for Bankruptcy
Bankrupt companies have no remaining assets left to function, and their shares are practically worthless. When a company files for bankruptcy, the stock exchange removes its shares from its listings. Two scenarios can happen here: the Chapter 11 bankruptcy where a company is merely seeking time to recover, which may give your stocks a second life; second, the company has cancelled its stock - which makes your stock worthless.
With that said, you can still trade your stock for chump change on Over The Counter deals.
Pro Tip: Always closely follow the financial health of your preferred stock company. Numbers like financial ratios, share values, compliance and other parameters help you infer whether or not it is likely to go bankrupt with these trends. If you get warning signs, you can always pull your money out and invest elsewhere in the nick of time.
Mergers / Acquisitions
Mergers and acquisitions are unique cases where shares get delisted for the dissolved entity and relisted for the newly-formed or acquiring company. In the case of mergers, the stock of both merging companies will get delisted, and the stock value of the new entity formed will be higher than both individually for a short amount of time. On the other hand, in the case of acquisitions, the acquiring company's stock will dip owing to debt payoffs and other formalities, post which it will rise steadily. The acquired company's stock will be delisted.
Pro Tip: Follow the news closely to keep an eye on the business decisions of your preferred stock company. If a merger is in the works, disinvest from the stock, and reinvest in the newly formed company. For acquisitions, it makes sense to disinvest from the acquired company's stock and invest in the buyer.
Conclusion
Delisting can have severe implications on the company as well as the shareholders. Especially in the case of shareholders, there is a significant sunk investment involved. To ensure that you aren't parking your funds with a dicey company, follow this quick guide to help you navigate the basics of choosing the right stocks that aren't under the threat of being delisted.
More About Stock / Share Market
- What is Dabba Trading?
- Learn about Sovereign Wealth Fund(SWF)
- Convertible Debentures: A Comprehensive Guide
- CCPS-Compulsory Convertible Preference Shares : Overview
- Order Book and Trade Book: Meaning & Difference
- Tracking Stock: Overview
- Variable Cost
- Fixed Cost
- Green Portfolio
- Spot Market
- QIP(Qualified Institutional Placement)
- Social Stock Exchange(SSE)
- Financial Statements: A Guide for Investors
- Good Till Cancelled
- Emerging Markets Economy
- Difference Between Stock and Share
- Stock Appreciation Rights(SAR)
- Fundamental Analysis in Stocks
- Growth Stocks
- Difference Between ROCE and ROE
- Markеt Mood Index
- Introduction to Fiduciary
- Guerrilla Trading
- E mini Futures
- Contrarian Investing
- What is PEG Ratio
- How to Buy Unlisted Shares?
- Stock Trading
- Clientele Effect
- Fractional Shares
- Cash Dividends
- Liquidating Dividend
- Stock Dividend
- Scrip Dividend
- Property Dividend
- What is a Brokerage Account?
- What is Sub broker?
- How To Become A Sub Broker?
- What is Broking Firm
- What is Support and Resistance in the Stock Market?
- What is DMA in Stock Market?
- Angel Investors
- Sideways Market
- Committee on Uniform Securities Identification Procedures (CUSIP)
- Bottom Line vs Top Line Growth
- Price-to-Book (PB) Ratio
- What is Stock Margin?
- What is NIFTY?
- What is GTT Order (Good Till Triggered)?
- Mandate Amount
- Bond Market
- Market Order vs Limit Order
- Common Stock vs Preferred Stock
- Difference Between Stocks and Bonds
- Difference Between Bonus Share and Stock Split
- What is Nasdaq?
- What is EV EBITDA?
- What is Dow Jones?
- Foreign Exchange Market
- Advance Decline Ratio (ADR)
- F&O Ban
- What are Upper Circuit and Lower Circuit in Share Market
- Over the Counter Market (OTC)
- Cyclical Stock
- Forfeited Shares
- Sweat Equity
- Pivot Points
- SEBI-Registered Investment Advisor
- Pledging of Shares
- Value Investing
- Diluted EPS
- Max Pain
- Outstanding Shares
- What are Long and Short Positions?
- Joint-Stock Company
- What are Common Stocks?
- What is Venture Capital?
- Golden Rules of Accounting
- Primary Market and Secondary Market
- What Is ADR in Stock Market?
- What Is Hedging?
- What are Asset Classes?
- Value Stocks
- Cash Conversion Cycle
- What Is Operating Profit?
- Global Depository Receipts (GDR)
- Block Deal
- What Is Bear Market?
- How to Transfer PF Online?
- Floating Interest Rate
- Debt Market
- Risk Management in stock Market
- PMS Minimum Investment
- Discounted Cash Flow
- Liquidity Trap
- Blue Chip Stocks: Meaning & Features
- Types of Dividend
- What is Stock Market Index?
- What is Retirement Planning?
- Stock Broker
- What is the Equity Market?
- What is CPR in Trading?
- Technical Analysis of Financial Markets
- Discount Broker
- CE and PE in the Stock Market
- After Market Order
- How to earn 1000 rs per day from the stock market
- Preference Shares
- Share Capital
- Earnings Per Share
- Qualified Institutional Buyers (QIBs)
- What Is the Delisting of Share?
- What Is The ABCD Pattern?
- What is a Contract Note?
- What Are the Types of Investment Banking?
- What are Illiquid stocks?
- What are Perpetual Bonds?
- What is a Deemed Prospectus?
- What is a Freak Trade?
- What is Margin Money?
- What is the Cost of Carry?
- What Are T2T Stocks?
- How to Calculate the Intrinsic Value of a Stock?
- How to Invest in the US Stock Market From India?
- What are NIFTY BeES in India?
- What is Cash Reserve Ratio (CRR)?
- What is Ratio Analysis?
- Preference Shares
- Dividend Yield
- What is Stop Loss in the share market?
- What is an Ex-Dividend Date?
- What is Shorting?
- What is an interim dividend?
- What is Earnings Per Share (EPS)?
- Portfolio Management
- What Is Short Straddle?
- The Intrinsic Value of Shares
- What is Market Capitalization?
- Employee Stock Ownership Plan (ESOP)
- What is Debt to Equity Ratio?
- What is a stock exchange?
- Capital Markets
- What is EBITDA?
- What is Share Market?
- What is an investment?
- What are bonds?
- What Is a Budget?
- Portfolio
- Learn How To Calculate The Exponential Moving Average (EMA)
- Everything about the Indian VIX
- The Fundamentals of the Volume in Stock Market
- Offer for Sale (OFS)
- Short Covering Explained
- What Is The Efficient Market Hypothesis
- What Is Sunk Cost: Meaning, Definition, and Examples
- What Is Revenue Expenditure? All You Need To Know
- What are operating expenses?
- Return On Equity (ROE)
- What is FII and DII?
- What is Consumer Price Index (CPI)?
- Blue Chip Companies
- Bad Banks And How They Function.
- The Essence Of Financial Instruments
- How to Calculate Dividend per Share?
- Double Top Pattern
- Double Bottom Pattern
- What is the Buyback of Shares?
- Trend Analysis
- Stock Split
- Right Issue of Shares
- How To Calculate the Valuation of a Company
- Difference between NSE and BSE
- Learn How to Invest in Share Market Online
- How to Select Stocks for Investing
- Do’s and Don’ts of Stock Market Investing for Beginners
- What is Secondary Market?
- What is Disinvestment?
- How to Become Rich in Stock Market
- 6 Tips to Increase your CIBIL Score and Become Loan-worthy
- 7 Top Credit Rating Agencies in India
- Stock Market Crashes In India
- 5 Best Trading Books
- What Is the Taper Tantrum?
- Tax Basics: Section 24 Of The Income Tax Act
- 9 Read-worthy Share Market Books for Novice Investors
- What is Book Value Per Share
- Stop Loss Trigger Price
- Wealth Builder Guide: Difference Between Savings And Investment
- What is Book Value Per Share
- Top Stock Market Investors In India
- Best Low Price Shares to Buy Today
- How Can I Invest in ETF in India?
- What is ETFs in Stocks?
- Best Investment Strategies in Stock Market for Beginners
- How To Analyse Stocks
- Stock Market Basics: How Share Market Works In India
- Bull Market Vs Bear Market
- Treasury Shares: The Secrets Behind The Big Buybacks
- Minimum Investment In Share Market
- What is Delisting of Shares
- Ace Day Trading With Candlestick Charts - Simple Strategy, High Returns
- How Share Price Increase or Decrease
- How to Pick Stocks in Stock Market?
- Ace Intraday Trading With Seven Backtested Tips
- Are You A Growth Investor? Check These Tips to Increase Your Profits
- What Can You Learn From The Warren Buffet Style of Trading
- Value or Growth - Which Investment Style Can be the Best For You?
- Find Why Momentum Investing is Trending Nowadays
- Use Investment Quotes to Improve Your Investment Strategy
- What is Dollar Cost Averaging
- Fundamental Analysis vs Technical Analysis
- Sovereign Gold Bonds
- A Comprehensive Guide To Learn How to Invest In Nifty In India
- What is IOC in Share Market
- Know All About Stop Limit Orders And Use Them To Your Benefit
- What is Scalp Trading?
- What is Paper Trading?
- Difference Between Shares and Debentures
- What is LTP in the Share Market?
- What is Face Value of Share?
- What is PE Ratio?
- What is Primary Market?
- Understanding the Difference between Equity and Preference Shares
- Share Market Basics
- How to Choose Stocks for Intraday Trading?
- What is Intraday Trading?
- How Share Market Works In India?
- What is Scalp Trading?
- What are Multibagger Stocks?
- What are Equities?
- What is a Bracket Order?
- What Are Large Cap Stocks?
- A Kickstarter Course: How To Invest In Share Market
- What are Penny Stocks?
- What are Shares?
- What Are Midcap Stocks?
- Beginner's Guide: How to Invest in the Share Market Successfully Read More
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. For detailed disclaimer please Click here.