What is Delisting?
Delisting refers to the process of officially removing a publicly traded company's stock from a stock exchange. When a listed company no longer meets the listing requirements set by the exchange or engages in serious regulatory violations, the exchange may decide to delist the company's stock, removing it from its trading platform.
Delisting is usually carried out by the stock exchange in accordance with relevant regulations and procedures, which can vary from one exchange to another. Common reasons for delisting include:
- Deterioration of business condition: If a listed company's financial health continues to worsen and fails to meet the financial criteria required by the exchange, the exchange may decide to delist its stock.
- Regulatory and legal violations: If a listed company is suspected of regulatory or legal violations, such as false disclosure of information, insider trading, or manipulation of stock prices, the exchange may conduct an investigation and ultimately decide to delist its stock.
- Operational abnormalities or significant events: In cases of bankruptcy, major mergers, significant restructurings, or forced dissolution, the exchange may decide to delist the company's stock.
Delisting can pose certain risks and losses to shareholders and investors. Once a stock is delisted, it can no longer be traded on the formal market of the exchange, severely limiting its liquidity, making it difficult for shareholders to sell their stake. Moreover, the level of information disclosure and regulatory oversight of a delisted company may decrease, requiring investors to cautiously assess the value and risks of holding such stocks.
Delisting also has significant impacts on the listed company itself, including damage to its reputation, reduced financing capabilities, and significant drops in stock prices. Therefore, listed companies typically strive to comply with the exchange's regulations to avoid delisting.
Can a Company Relist After Being Delisted?
A company that has been delisted may still be able to relist under certain conditions. Relisting refers to the process by which a formerly delisted company meets the listing criteria again and resumes trading on a stock exchange.
The pathways and conditions for relisting can vary across different markets and are dictated by the specific rules of each exchange. Generally, the company needs to undergo a series of restructuring, rectification, and reform measures to restore its financial health and operational capability to meet the exchange's listing requirements. These requirements may include financial indicators, disclosure of information, shareholder structure, and corporate governance conditions.
The process of relisting generally requires the company to submit an application, which is then reviewed and approved by the exchange. The review process may include an examination of the company's financial condition, business model, and management capability. If the company meets the relevant criteria and passes the review, the exchange can decide to relist its stock for trading.
It's important to note that relisting is not guaranteed to succeed and the process can be lengthy. Moreover, companies that relist after being delisted may face cautious attitudes from investors and market scrutiny of past issues. Therefore, after relisting, companies must strive to restore market confidence and investor trust.
Overall, relisting represents a significant opportunity for delisted companies, but its success depends on the company's ability to reform and restructure, as well as the exchange's review and approval.
Impact of Delisting on Investors
The impact of delisting on investors can be negative, as delisted stocks can no longer be traded on the formal market of an exchange, significantly reducing their liquidity. Here are some potential effects of delisting on investors:
- Inability to Trade: Once a stock is delisted, it cannot be bought or sold on the formal market of the exchange. This means that investors may not be able to immediately sell or buy the stock, making its liquidity very limited.
- Price Drops: Delisting often accompanies negative news or a deterioration in the company's business conditions, which can lead to significant drops in stock prices. The value of the stocks held by investors may suffer severe losses.
- Reduced Information Disclosure: After delisting, a company may no longer be subject to the exchange's information disclosure requirements, making public information less transparent and making it difficult for investors to access accurate financial and business details of the company.
- Increased Risk: Delisted companies may face more operational and financial risks since they are no longer subject to the regulation and norms of the exchange. Investors need to be more cautious in assessing the risk of holding stocks of a delisted company.
- Relisting Risks: Although some companies may seek to relist, there is no guarantee of success. Relisting requires meeting a series of conditions and procedures, and investors may have to wait a considerable time, still facing uncertainty and risks.
Given these factors, investors are generally advised to approach stocks of delisted companies with caution, evaluating risks and returns, and considering selling or adjusting their investment portfolios if necessary. When dealing with stocks of delisted companies, investors may need to conduct deeper research and due diligence to fully understand the company's situation and potential risks. Furthermore, investors should closely monitor market and industry trends, as well as announcements and decisions by exchanges, to adjust their investment strategies accordingly.
