I own shares of a company that just received a delisting notice from Nasdaq. Does this mean I will lose my shares?

By Chris Gallant AAA
A:

Let's start by walking through the reasons for listing requirements and what happens when a company's stock is delisted from a major exchange such as the Nasdaq.

The success of a stock exchange depends largely on investors' confidence in the stocks it trades on. So, to maintain investors' confidence, the major exchanges allow only public companies that meet specific requirements to list on the exchange. Just a few of these requirements are a minimum share price, number of shareholders and level of shareholders' equity. Should a stock fall below the minimum share price or fail to provide timely documentation of its performance and operations such as its 10-Q or 10-K filings with the Securities and Exchange Commission, the exchange may choose to delist the company's stock.

If one of your stocks is delisted, the company basically has two options. It can choose to trade on the Over the Counter Bulletin Board (OTCBB) or the pink sheets system. Usually, if the company is current with the release of its financial statements, it will trade on the OTCBB, as it is more regulated than the Pink Sheets (although both are much less regulated than the major exchanges). If the company is unable to trade on the OTCBB, it will likely end up trading on the Pink Sheets - the least regulated market for a publicly-traded equity.

When a stock drops down to either the OTCBB or the Pink Sheets, it suffers a loss in investors' confidence, as the company failed to meet the requirements of the trusted major exchanges. If the company remains delisted beyond a short period of time, institutional investors will likely stop researching and trading the stock, which means individual investors have access to much less information about the company. Liquidity and trading volume drop off as a result.

Now, throughout this entire process, you still legally own your shares in the company (should you choose not to sell them). However, delisting is generally regarded as the first step toward potential Chapter 11 bankruptcy. Should one of your stocks be delisted from a major exchange, it would be prudent to review carefully the reasons for its removal and the impact it will have on you as an investor - as you may not want to continue holding the stock.

For more detail, see The Dirt On Delisting.

RELATED FAQS

  1. What options strategies are best suited for investing in the aerospace sector?

    Learn how investors profit from volatility in the aerospace sector by employing options strategies, which include the long ...
  2. What options strategies are best suited for investing in the Internet sector?

    Learn how two popular options strategies, the long straddle and the long strangle, enable investors to make money on the ...
  3. How many attempts at the Series 7 exam are permitted?

    The National Association of Securities Dealers (NASD) has not placed any limits on the number of times you can attempt to ...
  4. Where can I buy covered call ETFs (exchange-traded funds)?

    Learn where to trade covered call option strategies, and how covered calls work including the type of risk associated with ...
RELATED TERMS
  1. Catastrophe Equity Put (CatEPut)

    Catastrophe equity puts are used to ensure that insurance companies ...
  2. Open Trade Equity (OTE)

    Open trade equity (OTE) is the equity in an open futures contract.
  3. Estimated Recovery Value (ERV)

    The projected value of an asset that can be recovered in the ...
  4. Recovery Rate

    The extent to which principal and accrued interest on a debt ...
  5. Bankruptcy Court

    What is bankruptcy court?
  6. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...

You May Also Like

Related Articles
  1. Options & Futures

    Why Is Best Buy Stock So Volatile?

  2. Trading Strategies

    A Guide Of Option Trading Strategies ...

  3. Options & Futures

    Options and Roth IRAs: Do's and Don'ts

  4. Options & Futures

    Trade Covered Calls On High Dividend ...

  5. Mutual Funds & ETFs

    How do I invest or trade market indicators?

Trading Center