Delisting of Securities: Voluntary and Compulsory Delisting A company can choose to voluntarily remove its securities from trading on a stock exchange. T...
Delisting
A company can choose to voluntarily remove its securities from trading on a stock exchange. This process is called voluntary delisting. Voluntary delisting is typically initiated by the company itself, rather than by an exchange order. Voluntary delisting allows a company to maintain control over its shares and avoid being acquired by another company.
Forced Delisting
In some cases, a company may be forced to delist its securities due to a stock exchange rule violation. This type of delisting is typically initiated by the exchange itself, and the company is given a set period of time to comply with the exchange rule violation before being delisted from the exchange.
Factors that trigger a forced delisting:
Violation of listing rules: Failure to submit timely financial reports, comply with listing requirements, or engage in other rule violations.
Low market liquidity: A stock with low trading volume may be more likely to be forced to delist if the exchange receives a petition from shareholders.
Financial instability: A company with poor financial health may be more likely to be forced to delist if the exchange determines that the company is unable to meet its financial obligations.
Acquisition offer: If another company makes a takeover offer for the company, the stock exchange may force the company to delist its securities to avoid being acquired.
Consequences of delisting:
The delisting of securities will remove the company's securities from trading on the stock exchange.
The company will no longer be required to file financial reports with the exchange.
The company may be entitled to receive proceeds from the sale of its remaining securities.
The company may face a fine or other penalties from the stock exchange.
Voluntary vs Compulsory Delisting:
Voluntary delisting: A company initiates the process voluntarily.
Forced delisting: An exchange initiates the process for various reasons, including rule violations or low liquidity.
Examples:
In 2017, Facebook was forced to delist its securities from the NASDAQ stock exchange due to a violation of its listing rules related to the disclosure of its Cambridge Analytica scandal.
In 2020, GameStop attempted to delist its securities from the NASDAQ stock exchange after a series of financial issues and regulatory investigations. However, the proposal was rejected by the exchange