What is 'Delisting'
Delisting is the process by which a listed security is removed from the exchange on which it trades. A company can voluntarily ask to be delisted to become privately traded. Otherwise, a particular stock may be removed from an exchange because the company for which the stock is issued is not in compliance with the listing requirements of the exchange.
BREAKING DOWN 'Delisting'Getting, and staying, listed to trade on a major stock exchange, such as the New York Stock Exchange (NYSE) or the NASDAQ, requires companies to meet many complex rules. There are also significant legal and compliance costs associated with a listing. As such, in some cases, companies choose to be delisted and, in more frequent cases, are forced to be delisted.
Voluntary Delisting of a Company
For some companies, the benefits of being publicly traded on a stock exchange are not enough to justify the associated costs. These companies can apply for delisting and become privately traded. This often occurs when a company is bought by a private equity firm and is going to be reorganized by its new shareholders. Another example is if two listed companies merge together and trade as a new entity. In such a case, the two former companies are delisted.
Involuntary Delisting of a Company
The reasons for delisting include violating regulations and failing to meet financial specifications set out by the stock exchange. Companies that are delisted are not necessarily bankrupt and may continue trading over the counter. For a stock to be traded on an exchange, the company that issues the stock must meet the listing requirements set out by the exchange. Listing requirements include minimum share prices, certain financial ratios and minimum sales levels. If listing requirements are not met by a company, the exchange that lists the company's stock will probably issue a warning of noncompliance to the company. If the company's failure to meet listing requirements continues, the exchange may delist the company's stock.
An involuntary delisting is often a sign of poor financial health or even mismanagement of a company. Even a warning issued by an exchange should be taken very seriously by anyone who owns shares of that company. For example, in April 2016, the clothing retailer Aéropostale Inc. was delisted by the NYSE for failing to meet its criteria after having received a notice five months prior. In May 2016, the company filed for bankruptcy and began trading over the counter.