A:

There are numerous standards established by stock exchanges to control membership in the exchange. Companies wishing to issue their stock on an exchange must meet certain listing requirements and maintain them.

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.

What Are Some Listing Requirements?

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.

For example, the New York Stock Exchange (NYSE) requires that a company must have at least 1.1 million publicly-traded shares outstanding that are worth at least $100 million to be listed.

What Happens to Delisted Stocks?

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 usually 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.

How Does This Affect Share Ownership?

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 carefully review the reasons for its removal and the potential impact it could have on you as an investor, because you may not want to continue holding the stock.

(For more detail, see "The Dirt on Delisting.")

RELATED FAQS
  1. Move from an OTC to a major exchange

    In order to move a company from over-the-counter market to a major exchange, a number of conditions must be met to being ... Read Answer >>
  2. How does the law of supply and demand affect the stock market?

    Find out how the law of supply and demand affects the stock market, and how it determines the prices of individual stocks ... Read Answer >>
Related Articles
  1. Investing

    Here's How to Dig Into Delistings to Find Profit

    Voluntary delisting of a stock from an exchange can provide opportunities for investors to profit. Here's how delistings work and some ways to cash in.
  2. 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.
  3. 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.
  4. Investing

    Chinese Companies Are Leaving U.S. Markets

    Chinese companies are pulling out of U.S. exchanges and that may be a good thing.
  5. Tech

    Nasdaq: Long Blockchain Deceived Investors With Bogus Name Change

    Nasdaq plans to delist Long Blockchain, saying it deceived investors by fraudulently changing its name from Long Island Iced Tea.
  6. Investing

    The Lowdown On Penny Stocks

    Think penny stocks will make you rich? If you don't understand the risks, you could end up penniless. Learn the potential traps you may fall into in penny stock investing.
  7. Investing

    Who Owns The Stock Exchanges?

    As M&A heats up among the exchanges, here's how the market currently looks.
  8. Investing

    How to Play Stocks in the Pink Market

    Stocks trading on the OTC Pink Open Market include many good companies waiting to be discovered. Find out how the OTC tiered companies into three markets.
  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

    Delisting is the removal of a security's inclusion on the stock ...
  2. Over-The-Counter Bulletin Board - OTCBB

    The over-the-counter bulletin board is a regulated electronic ...
  3. Listed Security

    A listed security is a financial instrument that is traded through ...
  4. Primary Listing

    A primary listing is the main stock exchange, such as the New ...
  5. Public Company

    A public company issues securities through an initial public ...
  6. Asset Deficiency

    Asset deficiency is a situation where a company's liabilities ...
Trading Center