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 are the rules behind the delisting of a stock?

    The criteria to remain listed on an exchange differs from one exchange to another. On the New York Stock Exchange (NYSE), ... Read Answer >>
  2. How does a company switch from one stock exchange to another?

    A publicly traded company can, in fact, switch to a stock exchange that it believes will be favorable to its financing efforts. ... Read Answer >>
  3. What are the listing requirements for the Nasdaq?

    Major stock exchanges, like the Nasdaq, are exclusive clubs - their reputations rest on the companies they trade. As such, ... Read Answer >>
Related Articles
  1. Investing

    The Dirt On Delisted Stocks

    Listed securities are "the cream of the crop". Find out how a firm can lose that status and why you should be wary.
  2. Investing

    Digging For Profitable Delistings

    Deregistration can provide opportunities for savvy investors. We'll show you how to cash in.
  3. Investing

    Why Companies Delisted from Indexes Can Be a Buy (OI)

    Learn about a value-investing strategy that takes advantage of stocks that may represent a bargain when they're delisted from a benchmark index.
  4. Investing

    NYSE Moves to Delist Violin Memory (VMEM)

    The New York Stock Exchange informed the flash storage firm that it will delist its stock over market capitalization standards. Here's what happens next.
  5. Trading

    Use Caution Trading Pink Sheet Stocks

    Pink Sheets stocks offer exciting opportunities to increase portfolio returns by large magnitudes in a short time. However, these opportunities come with significant risks. Investors need to ...
  6. Small Business

    The Fall From Glory: Delisting Brands

    We examine the intentions and consequences of having a brand delisted.
  7. Insights

    Getting to Know the Stock Exchanges

    Here are the answers to all the questions you have about stock exchanges but are too afraid to ask.
  8. Investing

    10 Most Famous Public Companies That Went Private

    Here’s a list of the most popular listed companies that went private in recent decades.
  9. Investing

    Leveraged Oil ETFs Face Delisting (UWTI, DWTI)

    Facing new regulatory pressure, CreditSuisse is going to shut down two popular leveraged oil ETFs in less than a month.
RELATED TERMS
  1. Delisting

    The removal of a listed security from the exchange on which it ...
  2. Over-The-Counter Bulletin Board - OTCBB

    A regulated electronic trading service offered by the National ...
  3. Listed Security

    A financial instrument that is traded through an exchange, such ...
  4. SEC Schedule 13E-3

    A schedule that must be filed with the Securities and Exchange ...
  5. Pink Slip

    A pink slip refers to a notice of dismissal given to an employee.
  6. Equity Market

    The market in which shares are issued and traded, either through ...
Hot Definitions
  1. Covariance

    A measure of the degree to which returns on two risky assets move in tandem. A positive covariance means that asset returns ...
  2. Liquid Asset

    An asset that can be converted into cash quickly and with minimal impact to the price received. Liquid assets are generally ...
  3. Nostro Account

    A bank account held in a foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts ...
  4. Retirement Planning

    Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve ...
  5. Drawdown

    The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted ...
  6. Inverse Transaction

    A transaction that can cancel out a forward contract that has the same value date.
Trading Center