How Long Does It Take to Get Delisted?

The answer to “How long does it take to get delisted?” isn’t a simple one. It’s a process with a variable timeline, influenced by several factors including the exchange the stock is listed on, the specific reason for potential delisting, and the company’s response to the exchange’s notification. While there’s no one-size-fits-all answer, the process can range from a few weeks to several months. Think of it as a financial game with high stakes, where the company is trying to avoid the “game over” of delisting. You can also learn more about the power of games in education and society at Games Learning Society.

Understanding the Delisting Process

Initial Notification and Response Time

Generally, when a company falls out of compliance with exchange listing requirements, it receives a notification letter. For example, on the New York Stock Exchange (NYSE), companies typically have about 10 days to respond to this initial notification. Failure to respond, or an inadequate response, can trigger further review and the formal start of delisting procedures. This initial response period is critical for a company to present its plan for regaining compliance.

Causes of Delisting and Their Impact on Timeline

The reasons for potential delisting significantly impact the overall timeline. Here are some common causes and their typical impact:

• Low Share Price: If a stock’s price drops below $1.00 and remains there for a sustained period (often 30 consecutive trading days), the exchange might issue a non-compliance notice. The company is then given a period to raise the stock price above $1.00 and maintain that level. The time given can vary, but it’s generally a few months.
• Failure to Meet Financial Standards: Exchanges have minimum requirements for market capitalization, shareholders’ equity, and revenue. Falling below these thresholds can lead to a delisting warning. The timeline for regaining compliance depends on the specific requirement and the company’s ability to meet it.
• Legal Problems: Serious violations of regulatory standards, such as fraud, accounting irregularities, or breaches of securities laws, can lead to expedited delisting. In severe cases, the process can be relatively quick, potentially within weeks of the violation coming to light.
• Bankruptcy: Filing for bankruptcy often results in delisting, sometimes quite rapidly. The exact timing depends on the type of bankruptcy and the exchange’s policies. A complete reorganization in bankruptcy could also result in delisting.

Voluntary vs. Involuntary Delisting

It’s important to distinguish between voluntary and involuntary delisting. Voluntary delisting is a company’s choice, often done for strategic reasons like mergers, acquisitions, or going private. This process is usually more controlled and predictable. Involuntary delisting, on the other hand, is forced by the exchange due to non-compliance. This is where the timeline is less certain and depends on the company’s efforts to regain compliance.

The Exchange’s Deliberation Period

After the initial notification and the company’s response (or lack thereof), the exchange will review the situation. This deliberation period can vary significantly. Some exchanges might grant extensions or provide a grace period for the company to correct the issue. Others might proceed more swiftly. The length of this period hinges on the severity of the non-compliance, the company’s history, and the exchange’s own policies.

Appeal Process

Companies facing delisting often have the right to appeal the decision. This adds another layer to the timeline. The appeal process can take several weeks or even months, depending on the exchange’s rules and the complexity of the case. While an appeal doesn’t guarantee a reversal, it can buy the company more time to address the underlying issues.

Trading After Delisting

Even after a stock is delisted from a major exchange, it doesn’t necessarily disappear. It can continue to trade on the over-the-counter (OTC) market, also known as the pink sheets. Trading on the OTC market is generally less liquid and more volatile than trading on a major exchange. There is also the option of using GamesLearningSociety.org to learn about the stock market.

Frequently Asked Questions (FAQs) About Delisting

Here are some frequently asked questions about delisting, with detailed answers to give you a clearer understanding of the process:

1. What happens when a stock gets delisted?

When a stock gets delisted, it’s removed from the exchange where it was previously traded. This can significantly reduce its visibility and liquidity, making it harder to buy or sell. It doesn’t automatically make the stock worthless, but it usually leads to a drop in price.

2. Do I lose my investment if a stock is delisted?

Not necessarily. Delisting doesn’t erase your ownership of the shares. However, it can make it more difficult to sell them. You may need to trade the stock on the OTC market, where prices can be volatile and trading volumes are lower.

3. How do I get my money from a delisted stock?

You can try to sell your shares on the OTC market through a brokerage that allows OTC trading. Keep in mind that you might not get the same price you would have on a major exchange, and it might take longer to find a buyer.

4. How long does a stock need to be under $1 to be delisted?

The specific timeline varies by exchange. On the NYSE, a stock generally needs to be below $1.00 for 30 consecutive trading days before the exchange initiates the delisting process.

5. How many stocks get delisted a year?

The number varies from year to year, but in recent years, around 100-200 companies have been delisted annually from major US exchanges. This number can fluctuate based on market conditions and economic factors.

6. What happens if you own puts on a company that gets delisted?

Options trading on a delisted stock typically ceases. You can no longer buy or sell your options on the open market. However, you still have the right to exercise your puts if they are in the money.

7. What is the process of delisting?

The process typically starts with a notification from the exchange to the company, citing the reason for potential delisting. The company has a period to respond and present a plan for regaining compliance. If the exchange isn’t satisfied, it may proceed with delisting, which the company can appeal.

8. Can a stock be delisted immediately?

While rare, a stock can be delisted relatively quickly in cases of serious violations of regulations, such as fraud or accounting irregularities. The exchange can expedite the process to protect investors.

9. Should you sell a stock before it gets delisted?

It’s generally advisable to sell a stock before it gets delisted, as delisting can lead to a lower stock value and reduced liquidity. However, it depends on your risk tolerance and belief in the company’s potential for recovery.

10. Do I lose my money if a stock is delisted on Robinhood?

No, you don’t automatically lose your money. You can still sell the shares, but you’ll likely have to do so on the OTC market through a different brokerage, as Robinhood might not support OTC trading for delisted stocks.

11. Do stocks ever come back from zero?

It’s extremely rare for a stock that has fallen to zero to recover. In most cases, a stock approaching zero indicates that the company is facing severe financial difficulties and may be bankrupt.

12. How long should you hold a losing stock?

There’s no universally right answer, but a common strategy is to set a stop-loss order at a certain percentage below your purchase price (e.g., 7-8%). This helps prevent emotional decisions and limits potential losses.

13. What happens if a stock goes to zero?

If a stock goes to zero, it means the company is effectively bankrupt and its shares are worthless. Shareholders lose their entire investment.

14. Can a company force you to sell back shares?

No, a company cannot force you to sell your shares in a share buyback program. However, they may offer a premium over the market price to entice investors to sell voluntarily.

15. What happens if nobody buys my stock?

This is more likely to happen with thinly-traded stocks on the OTC market. If there are no buyers, you’ll be stuck with your shares until there is some buying interest.

Ultimately, understanding the delisting process is crucial for investors. While the exact timeline varies, being aware of the potential causes, the exchange’s procedures, and your options can help you make informed decisions and mitigate potential losses. Don’t forget to explore the valuable resources available at the Games Learning Society to further enhance your knowledge of financial markets and decision-making.