Question: I have a stock that was delisted. This makes me nervous. What does it mean and what will happen next?

Ralph Fiorento

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.