When a company sells stock to investors for the first time, it lists the stock on an exchange to facilitate trading. Every exchange has its own minimum listing requirements for continuous listing. If a stock fails to meet the minimum listing requirements, it can face being delisted from the exchange and will cease trading. A stock can be delisted from an exchange if it doesn't meet a certain volume, price, or other requirements.
Stock Price Prior to Delisting
A company is usually delisted after its stock price and trading volume has declined substantially. Before a stock is delisted, the company receives a warning from the exchange that it has to be in compliance by a certain deadline. If investors sense an imminent delisting, they may sell off the stock, which would likely push the price even lower.
Stock Price After Delisting
Stock trading establishes a stock’s fair market price. Once a stock is delisted, its price can no longer be determined through trading on that particular market. However, when a stock is delisted from a major market, such as NYSE or Nasdaq, it often moves to an over-the-counter (OTC) market. Rather than being traded in an exchange, OTC stocks are bought and sold through a network of dealers and brokers who negotiate directly with each other.
Value vs. Price
A delisted stock still represents ownership in a company whose assets might still be worth something. But unless a shareholder is a company insider, it is virtually impossible for him to determine how much, if anything, his shares are worth. The value of a delisted stock depends on what eventually happens to the company.
Bankruptcy or Dissolution
If the company files for bankruptcy or dissolves itself, its shares cease to exist.
Company Sale or Turnaround
Insiders who know the value of their company may buy up its shares prior to delisting for pennies on the dollar. If the company or its assets are subsequently sold, the insiders may get more for their shares than they paid. If the company turns itself around, its value, and the value of its shares, will increase and the stock price will most likely be determined by what the insiders are able to do with their shares at that point.
- SEC: Listing and Delisting Requirements
- Securities and Exchange Commission. "Over-the-Counter Market." Accessed May 28, 2020.
- OTC Markets. "FAQs: What Happens to Shares When a Company Is Delisted From an Exchange?" Accessed May 28, 2020.
- Robinhood. "What Happens If I Own a Stock That's Delisted?" Accessed May 28, 2020.
- Office of Investor Education and Advocacy. "Listing Standards." Accessed May 28, 2020.
- New York Stock Exchange. "NYSE MKT Initial Listing Standards." Accessed May 28, 2020.
- New York Stock Exchange. "NYSE MKT Continued Listing Standards." Accessed May 28, 2020.
- Securities and Exchange Commission. "Exchange Act Reporting and Regulation." Accessed May 28, 2020.
Based in San Diego, Slav Fedorov started writing for online publications in 2007, specializing in stock trading. He has worked in financial services for more than 20 years, serving as a banker, financial planner and stockbroker. Now working as a professional trader, Fedorov is also the founder of a stock-picking company.