| Answer:
Dear Leo,
Most likely it means the company’s stock price dropped below the $1/share minimum required by both the New York Stock Exchange (NYSE) and the Nasdaq. This is the most common reason for delisting. And, the $1 delisting rule, which went away for a while, has made a comeback.
For many years, both the New York Stock Exchange and the Nasdaq required that stocks not trading above $1 for 30 consecutive days would be tossed into the delisting process.
Then, last year as the market tumbled, both the NYSE and the Nasdaq suspended the $1 requirement. The rule came back in play in August.
The return signals that the board of directors of the NYSE and the Nasdaq believe the market is recovering – obviously a tremendous positive for individual investors.
In fact, Glenn Tyranski, senior vice president of Finance Compliance and Listed Company Compliance for the NYSE recently told the press,” We wanted investors to take a collective breath. But…the market has come back, and it was time to restart the rule.”
The delisting process
The NYSE and Nasdaq send letters notifying a company’s CEO that his/her company is facing delisting. Delisting, however, is not instant. It takes several months at a minimum and often as long as six months, thus giving the company time to take positive steps to boost its stock price.
And, because we now are seeing a fairly sustained rally in the market, it could be that stock prices for those firms that have recently received delisting notification may be part of the rally and will start to trade above $1.
If and when that takes place, it offers a good buying opportunity for investors – but only for stocks that have promise. This is, in fact a somewhat high-risk approach to investing.
Beyond the $1 rule
There are other reasons why a stock may be delisted, although falling below the $1 price is the most common. You can read each and every one of them at:
Among the other possible reasons for delisting: an insufficient number of publicly held shares, an insufficient market capitalization and failing to file required documents on time.
Your shares in a delisted company
Once a stock is formally delisted, you will still own the shares you held prior to delisting. They will trade on the Over the Counter Bulletin Board, an electronic trading service run by the Financial Industry Regulatory Authority, which for years was known as the NASD (National Association of Security Dealers) or in the very speculative Pink Sheets which does not require companies to register with the SEC.
Delisting is not always a negative
Well, obviously it’s not a good sign. However, there are some reasons for delisting that are less worrisome than others. For example, a company could voluntarily delist because it wishes to go private. Or it may delist because of corporate restructuring, generally the result of a merger or acquisition. Or it may wish to discontinue offering a certain class of shares.
Next week: We will expand upon this topic and discuss reverse splits, a technique often used by stocks threatened with delisting. So, stay tuned.
Good Luck! |
