What is Delisting?

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Delisting is the removal of a listed security from a stock exchange. The delisting of a security can be voluntary or involuntary and usually results when a company ceases operations, declares bankruptcy, merges, does not meet listing requirements, or seeks to become private.

Definition

Delisting refers to the removal of a listed security from a stock exchange. This can be voluntary or involuntary, typically occurring when a company ceases operations, declares bankruptcy, merges, fails to meet listing requirements, or seeks to become a private company.

Origin

The concept of delisting emerged with the development of securities markets, dating back to the late 19th century when stock exchanges began establishing rules to maintain market order and transparency. As global financial markets matured, the procedures and regulations for delisting have been refined.

Categories and Features

Delisting can be categorized into voluntary and involuntary delisting. Voluntary delisting is often a result of strategic corporate decisions, such as privatization or mergers. Involuntary delisting usually occurs when a company fails to meet the exchange's ongoing listing requirements, such as poor financial health or failure to submit timely financial reports. Voluntary delisting is initiated by the company, while involuntary delisting is enforced by the exchange.

Case Studies

A notable example is Dell Inc.'s privatization in 2013. Dell chose to delist from NASDAQ to allow more flexibility in restructuring and strategic adjustments. Another case is China's LeTV in 2019, which was forcibly delisted by the Shenzhen Stock Exchange due to financial issues and failure to meet listing requirements.

Common Issues

Common issues investors face with delisting include how to handle their shares and whether they can receive compensation. Typically, investors need to sell their shares before the company delists or accept cash compensation during privatization. Additionally, investors might mistakenly believe delisting means the company is bankrupt, but delisting does not necessarily imply company closure.

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