Delisting: Process, Implications, and Investor Tips

Delisting is the removal of a security from a stock exchange. It can be voluntary (a company choosing to go private) or involuntary (the exchange removes the listing for failing to meet requirements). Delisted shares do not disappear, but they usually become harder to trade and carry greater risk for investors.

How delisting works

Exchanges set listing standards (minimum share price, market capitalization, filing and reporting obligations, governance requirements, trading volume).
If a company falls short, the exchange issues a noncompliance notice and allows time to cure the deficiency. Continued noncompliance can lead to involuntary delisting.
Voluntary delisting occurs when a company’s board and shareholders approve taking the company private or otherwise exiting the exchange. An investment bank often manages the process, including negotiating share buybacks or tender offers.

Common triggers for involuntary delisting

Failure to meet minimum share price or market-cap thresholds
Missed or late financial filings and reporting breaches
Sustained financial losses, high debt, or falling revenue
Low trading volume or liquidity
Serious legal or regulatory violations (fraud, accounting failures)
Corporate-governance deficiencies (e.g., inadequate independent oversight)
Changes in exchange listing requirements that the company cannot satisfy

Companies sometimes use a reverse stock split (e.g., combining multiple low-priced shares into one) to lift the share price above minimum thresholds and avoid delisting.

The delisting process (typical steps)

Exchange issues a warning and a cure period for the company to comply.
If noncompliance persists, the exchange initiates delisting procedures and eventually removes the security.
For voluntary delisting, the board and shareholders must approve the plan, the company files required notices with the exchange, and an investment bank typically coordinates a tender offer or buyback to reacquire enough shares to complete the exit.

What happens to shares after delisting

Shares often migrate to over-the-counter (OTC) markets where trading is less liquid and less regulated.
Bid-ask spreads typically widen, transaction costs rise, and finding buyers at acceptable prices becomes harder.
Disclosure and reporting standards are generally lower OTC, reducing transparency for investors.
In voluntary delistings tied to buyouts or mergers, shareholders may receive cash or shares of an acquiring company. In forced delistings, there is often no special offer.

Investor actions and considerations

Sell before delisting when possible: exchange trading is usually more liquid and gives better pricing than OTC.
If you retain shares post-delisting:
Expect lower liquidity and wider spreads.
Use limit orders to avoid unfavorable execution.
Monitor company communications closely, since fewer regulatory protections may apply.
Consult your broker about how the shares will trade OTC and any restrictions.
Evaluate the company’s fundamentals and recovery prospects before deciding to hold through OTC trading.

Re-listing and upside cases

A delisted company can sometimes regain compliance and apply for re-listing, but this can be difficult—especially if the delisting followed bankruptcy or serious regulatory trouble.
Delisting can also be a strategic, positive move: companies that go private can avoid public reporting costs and short-term market pressures, sometimes improving operations away from public scrutiny.

Key takeaways

Delisting removes a security from an exchange and can be voluntary or involuntary.
Involuntary delisting commonly signals compliance, governance, or financial problems.
After delisting, shares usually trade OTC with lower liquidity and transparency.
Investors should aim to sell before delisting where feasible and carefully weigh the merits of holding delisted shares.

Sources (select)

New York Stock Exchange: continued listing standards
Nasdaq: continued listing guide
Guidance and analyses from investment-banking and securities-practice firms
Case studies of corporate delistings and going-private transactions