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Public companies need to meet certain requirements for their stocks to be traded — or listed — on stock exchanges such as the New York Stock Exchange or the Nasdaq. If a company fails to meet those requirements, the stock can be delisted from the exchange.
For example, in 2019, shares of server maker Super Micro Computer (SMCI) were delisted after failing to meet certain financial reporting deadlines. Nasdaq approved the company’s application for relisting in early 2020, but the risk of another delisting surfaced in November 2024 after Super Micro again missed reporting deadlines and its auditor resigned.
Here’s what investors should know about stock delistings.
What is delisting?
Delisting is when a company’s stock is removed from a stock exchange such as the NYSE or the Nasdaq. A delisting may occur for several different reasons. It could be the result of the company going private, declaring bankruptcy, merging with another company or failing to meet the exchange’s listing requirements.
If a company’s stock is delisted from an exchange, shareholders still own their shares in the company, but the stock may trade over-the-counter, which could lead to decreased liquidity and less transparency for investors.
How delisting works
Exchanges have certain requirements that companies must comply with to be listed. If a company fails to meet these standards, they could face being delisted from the exchange.
Typically, the exchange sends a notice to the company that it is not in compliance with the exchange’s listing requirements, which serves as a warning before the actual delisting. The company may be given a period of time to come back into compliance with the exchange’s rules, but if it doesn’t, its stock will be delisted.
Companies can apply for relisting once they meet the exchange’s requirements.
Reasons a stock gets delisted
Each exchange has its own listing requirements, but these are some of the common reasons a company may face delisting:
Failure to meet financial requirements: Exchanges have certain financial requirements that companies must meet in order to be listed such as minimum levels of net income or shareholder’s equity. Failure to file financial reports on time: Companies must meet financial reporting deadlines when filing quarterly and annual reports.Bankruptcy: If a company files for bankruptcy, its stock may be removed from an exchange.Fraud: Legal issues or strong evidence that a company has committed accounting or financial fraud may lead to a delisting.Failure to meet trading requirements: Exchanges require a company’s stock to meet certain price and volume requirements over a period of time. Poor corporate governance: Failure to meet certain governance requirements, such as having an adequate audit committee or having independent directors on the board, could lead to delisting.
What investors should do if a stock they own gets delisted
If you own shares in a company that gets delisted, you should work to find out why the stock was delisted. You may be willing to tolerate some of the reasons for delisting, while others, such as fraud, may be more concerning.
You should also know that delisting doesn’t impact the number of shares you hold or whether you still have a stake in the company, it just impacts where those shares trade. Delisted shares may continue to trade over-the-counter, which could reduce liquidity and lead to less transparency from the company.
Delisted shares could come under pressure due to forced selling by institutional investors that are required to hold shares that trade on certain exchanges. Delistings could also lead to a company being removed from certain indexes, such as the S&P 500, which could lead to selling by funds that track those indexes.
Bottom line
Delisting is the process of a company’s stock being removed from an exchange such as the NYSE or the Nasdaq. Delistings may happen for several reasons, but investors should be most concerned if the reason involves potential fraud, bankruptcy, failure to meet financial reporting requirements or other legal issues. Once delisted, a company’s shares may continue to trade over-the-counter.