Delisting Process

The delisting process is the set of steps through which a security stops being listed and traded on a stock exchange. It can be started by the company, in a voluntary delisting, or imposed by the exchange or regulator when the company no longer meets the conditions for listing. In either case the process follows rules designed to give investors notice and, where possible, a chance to sell before the public market disappears.

This entry covers the procedure; the concept and its causes are described under delisting. The process is the reverse of listing admission, and it should be distinguished from a trading halt or trading suspension, which interrupt dealing temporarily while the listing remains in place.

A company may choose to leave an exchange because it is being taken private, because it is moving its listing to another market, or because the cost of remaining listed outweighs the benefit. The usual steps are as follows.

1. Board decision. The board resolves to seek cancellation and announces its reasons and the proposed timetable.
2. Shareholder approval. Many markets require a vote at a shareholder meeting. In the United Kingdom, cancelling a listing of shares in the main commercial companies category generally needs the approval of at least 75% of votes cast, and also a majority of independent shareholders where there is a controlling shareholder.
3. Notice period. The company gives the exchange and the market advance notice, commonly at least twenty business days in London, so that holders can trade before cancellation.
4. Application and cancellation. The company applies to the exchange and, where relevant, the listing authority, which cancels the listing on the stated date.
5. Deregistration. Reporting duties under securities law may continue after trading stops and have to be ended separately.

In the United States, a company leaving the New York Stock Exchange or Nasdaq notifies the exchange, issues a press release and files Form 25 with the Securities and Exchange Commission; the delisting takes effect ten days later. To stop periodic reporting, the company must also be eligible to file Form 15, which depends on having a small enough number of holders of record.

The most common route off an exchange is acquisition. After a successful takeover offer, a bidder that reaches a high enough level of acceptances can buy out the remaining minority compulsorily, at 90% in the United Kingdom and at thresholds between 90% and 95% in most European countries, and then cancel the listing without a separate vote. Where the acquisition is carried out by a court-approved scheme of arrangement or a statutory merger, the listing ends when the transaction becomes effective. A management buyout or other buyout transaction of a listed company follows the same path.

Some jurisdictions require a formal exit offer to minority holders at a price set by rule. India, for example, has used a reverse book-building method in which shareholders tender at prices they choose, and delisting succeeds only if the acquirer reaches a set ownership level.

Exchanges remove securities that breach continued listing standards. Typical grounds are a share price or market capitalisation below the minimum, too few public shareholders, failure to publish financial reports on time, insolvency, or serious governance failures. On the main United States exchanges, a closing price below one dollar for thirty consecutive trading days triggers a deficiency notice.

The process is staged. The exchange notifies the company, which must announce the notice. The company is normally given a cure period in which to regain compliance, for instance through a reverse stock split to lift the share price, or to submit a plan. If it fails, the exchange issues a delisting determination, which the company can appeal to a hearings panel. Once appeals are exhausted, trading is suspended and the exchange itself files to remove the security.

Delisting does not cancel the shares. Investors still own them, with the same rights to dividends and votes, but they lose the regulated market, its price transparency and much of the liquidity. In the United States, delisted shares often continue to be quoted over the counter. Elsewhere, sales may be possible only by private off-market transfer or through a matched bargain facility arranged by the company.

Holders of an American depositary receipt face an added step when a foreign issuer ends its programme: the depositary gives notice, and holders may surrender their receipts for the underlying shares or receive the proceeds when the depositary sells them.

For custodians and brokers, a delisting is processed as a corporate action. The event is captured from the exchange notice, clients are notified of the last trading day and any offer, and the security's status is updated in reference data. Index providers remove the security, forcing index funds to sell beforehand. Funds restricted to listed assets may have to dispose of the holding, and the position may need to be revalued using a fair value method once market prices are no longer available.