What Happens When a Stock Is Delisted?

When a stock is involuntarily delisted, it's probably not a good thing

Trading stocks. GlobalStock / Getty Images

Publicly-traded companies' stocks are traded on stock exchanges, such as the New York Stock Exchange (NYSE) or the NASDAQ Stock Market.

If you own a stock that's subsequently delisted from the stock exchange on which it had been trading, you might think that's a bad thing ... and in many cases, it is a bad thing. But there are some circumstances in which a delisting might not indicate a problem.

Possible Stock Exchange Reasons for Delisting a Stock

Stock exchanges generally impose rules on companies who wish to have their shares traded.

If a corporation wanted its shares traded on the NYSE, for example, the company would be required to have a certain number of shareholders, a minimum price per share, and a minimum market cap.

Stock exchanges also require companies to file certain documents to provide financial information to shareholders and potential shareholders.

If at any time the corporation failed to meet one of these criteria, the exchange could delist it, meaning the shares of that particular company would no longer be traded on that exchange.

When a company is delisted, it is often a serious sign of financial or managerial trouble and generally causes the stock price to fall.

Delisting became a serious problem for many companies after the dot-com crash of 2000. Faced with bankruptcy, the shares of many technology companies were trading below $1, causing them to be in violation of the minimum price-per-share rule. To prevent this, many companies declared reverse splits, which increased their share prices above the minimum.

When Companies Choose to Delist Their Stocks

It's possible for a company to voluntarily delist its stock from the exchange on which it's traded.

When this occurs, the company may have gone private. This means its shares have been bought out, potentially by a private equity firm, and it may be a sign of good things to come for the company in question.

It's also possible for a stock to be delisted from a stock exchange as a result of a merger or of a financial restructuring. In these cases, the company might have gone private, or its stock might be traded on a different exchange or under a different symbol.

When Your Stock Is Involuntarily Delisted

If a stock you own has been involuntarily delisted by its stock exchange, you still own the stock, and you still have all the rights accorded to you as a shareholder.

However, you may have lost a significant part of your investment, since companies rarely are involuntarily delisted unless they're in fairly bad shape financially. In addition, once a company is delisted, its shares often sink further. And finally, the stock may be more difficult to sell.

Delisted stocks are traded "over the counter" (OTC) through what are called "market makers." To buy and sell OTC stocks, your broker will need to contact a market maker for that stock directly. The Over-the-Counter Bulletin Board (OTCBB) provides pricing information on over-the-counter stocks.