Delisting of stocks

A delisting means that trading in a company’s shares is terminated on the market (stock exchange) where they were previously traded. This can occur based on the board’s initiative or a decision by the exchange. For shareholders, a delisting means that trading becomes significantly more difficult to execute in the future.

How shareholders are affected

The biggest difference for shareholders is that trading becomes significantly more difficult to execute. When the stock is listed, trading can take place via a standard online broker, but when the stock is delisted, trading must instead take place manually between different parties.

Another difference is that delisted shares often cannot be held in certain tax-advantaged accounts (such as specific retirement accounts or tax-deferred vehicles). Upon delisting, your broker may require that these shares be transferred to a standard brokerage account, which can change the tax implications of your holdings.

Why are stocks delisted?

Stocks are usually delisted for one of the following two reasons:

1. Voluntary application

The board’s decision to delist the company is primarily due to:

• There are no longer economic incentives to remain on that exchange.

• The board believes that they will soon be unable to meet the requirements placed on all publicly traded companies.

In the case of a voluntary application, it is sent to the exchange, which, together with the company, determines the final trading date for the stock. This usually happens within a couple of weeks, with a timeframe of up to 6 months.

2. Decision by the exchange

It is most common for delisting to occur following a voluntary application. However, it can also happen through a decision made by the exchange.

• The company does not meet the requirements the exchange has for all listed companies. The exchange usually points this out first, after which the company is given time to implement measures.

• The company has not paid the listing fee.

• A bankruptcy petition for the company has been filed, regardless of whether it is by company management or creditors.

• The company is acquired.

• Such significant changes in structure and operations have occurred that it should be considered a new company. In this case, the exchange may require the company to apply for a new listing, and if that does not happen, the exchange may decide that it should be delisted.

Pros and cons of being listed

The advantage of being listed is primarily that the company can more easily raise capital and facilitate trading in the stock. By being on a stock exchange, interest in the company generally increases, and trading volume rises.

The disadvantage of being listed is the cost involved, as well as the fact that a listing entails significantly higher requirements for transparency and information flow. If the rules are not followed, the company can, in the worst case, be delisted.

A delisting can therefore occur because the company cannot afford to remain on the list, but also because they do not want to be as open with the company’s finances or certain other information.

If a company is listed, trading in its shares also takes place anonymously. Thus, anyone (including its competitors) can buy shares in the company. If it is unlisted, it is easier to control who buys the shares. However, this is rarely a deciding factor for delisting.