Delisting is the removal of a stock from a trading exchange because of its failure to meet the exchange's requirements.
Being ditched by a stock exchange is not the end of the world for a company or its shareholders, but it can signal substantial problems, which investors should take time to investigate. To maintain reputation, quality, and credibility, exchanges like NYSE Euronext, Nasdaq, and American Stock Exchange (AMEX) want only strong stocks trading on their platforms. Companies, in turn, want the stamp of approval that comes with being listed.
To stay listed, stocks must meet standards which can include paying what are basically entrance and annual membership fees, filing timely financial reports, trading at certain levels, and maintaining specified amounts of liquidity. Minimum requirements for financial line items such as market cap, revenue, and cash flows are other examples of listing criteria. Each exchange sets its own rules.
An exchange can delist a security if the rules are violated. There is generally a procedure for companies to contest the delisting and propose ways to fix deficiencies. A company might also be removed from an exchange for innocuous reasons, such as going private and no longer trading publicly, being involved in a merger, or moving to another exchange.
Unlisted stocks can be traded in what is known as over-the-counter forums.
Related Fool Articles
Recent Mentions on Fool.com
- A Bogus Bid for Barnes & Noble?
- Has This Wind Turbine Maker Turned the Corner, or Is It Just Hot Air?
- This Old High-Flyer Is Going to Zero, and You Know It
- Why Potbelly Has More Upside Than Noodles & Company
- Here's What This $41 Billion Money Manager Has Been Buying
- A Silver Lining in the Silvercorp Saga?