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Answer:
Dear
Ralph,
I
realize "delisting" sounds negative, but you need
to find out the facts before panicking.
Delisting
simply means that a company no longer meets the requirements
to be traded on an exchange (the New York or American)
or on NASDAQ. The rules for delisting vary. For example,
on NASDAQ, if a stock trades for 30 consecutive business
days below a minimum bid price or below market cap,
it could be delisted. The company is then told it
has 90 days to get back up to the required levels.
And, many do.
Companies
can also be delisted because management failed to
file certain financial documents on time. This situation
can readily be remedied.
Generally,
when an exchange or NASDAQ delists a company, its
shares begin to trade on the Over-the-Counter Bulletin
Board, known as the OTCBB, an electronic trading service
operated by the National Association of Securities
Dealers. It is not nearly as prestigious nor as regulated
as the exchanges or NASDAQ. In other words, there's
less cache being traded here.
Translation:
At least temporarily there will be fewer potential
buyers for the stock and it's quite likely that it
will be difficult to sell shares quickly and at a
good price.
I
recommend that you call the company's Investor Relations
Department and ask why the company was delisted. Or
check the firm's website. It may just be a temporary
problem.
The
answer to "why" will help you decide whether to keep
your shares, to sell a portion of your holdings or
to cut out completely.
A
Word About Bankruptcy
Delisting
does not automatically mean that a company is going
to go bankrupt; many companies survive the process.
However, it is true that delisting may make it difficult
for a company to raise money. At the same time, it
may also trigger creditors to start to call in loans.
In the process, the company's credit rating may be
downgraded.
The
Confidence Factor
Although
a company may continue to be successful after being
delisted, as you can see, there is a negative aura
surrounding the process. People typically trust the
firm's management less than prior to delisting and
the company's reputation may be diminished. Diminished
confidence in the company can lead to a lower stock
price.
A
More Serious Situation
If
a company is delisted from the OTCBB, the situation
becomes even more serious. Then the stock will trade
on the "Pink Sheets" (a quotation service) for a dollar
or so, or even for a few cents. (This is where so-called
"penny stocks" trade. Stocks on the Pink Sheets are
speculative and may face difficulty raising money.
If
your stock winds up on the Pink Sheets, ask the Investor
Relations Department if it is going private and will
be buying out the shareholders.
If
you need additional information on this crucial topic,
please feel free to write in again.
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