Share delisting is the process by which a company’s securities are removed from a trading exchange, making them unavailable for purchase or sale.
This event can be triggered by a variety of reasons, including mergers and acquisitions, company restructuring, reduced share liquidity , or strategic decisions.
Merger or Acquisition – One of the most common reasons for delisting shares is a company merger or acquisition. When two companies merge, the shares of one of them can be withdrawn from the stock exchange.
This happens because, after the merger, the new entity decides to concentrate on the single equity market or choose another exchange to trade its securities.
Restructuring (transformation) – In some cases, the company decides to move from a public company to a closed joint stock company, that is, the sale of its securities will be available only to a narrow circle of people.
This step is connected with the desire to reduce the cost of management and reporting to investors, as well as to avoid a public assessment of its value.
Low liquidity – Decrease in liquidity is another reason for stock delisting. If shares are traded on an exchange with low trading activity and low trading volume, this can lead to a drop in price and, as a result, a decrease in the company’s rating.
Bankruptcy of the issuer – if the company declares itself bankrupt and cannot pay its obligations, then its securities are removed from the exchange.
The delisting of shares has a significant impact on financial markets. It can cause changes in quotes, as well as be perceived by investors as a signal about the state and prospects of the company.
In addition, this procedure has an impact on exchange indices, since the exclusion of a security from a trading index may require recalculation of its composition and share weights.
It should be noted that the delisting of shares does not always mean negative consequences for the company or investors. In some cases, such an event has a positive impact on the financial condition of the company, most often this happens during mergers.
What assets are still subject to delisting?
Delisting is more often associated with stock exchanges, but this action can be applied to other exchange-traded assets.
Such assets can be:
Bonds – the procedure applies to the process of withdrawing bonds from trading in the bond markets.
Issuers of a security may decide to withdraw their bonds from the market at maturity or due to a change in financial strategy.
Commodities – delisting on commodity exchanges means removing a commodity or resource from the list of tradable assets.
Cryptocurrencies – With the advent of blockchain and cryptocurrency markets, delisting is also being applied to digital assets such as cryptocurrencies and tokens.
Cryptocurrency exchanges apply the decision to withdraw digital assets from trading for various reasons, including security concerns, low liquidity, or regulatory requirements.
Exchange Traded Funds – The delisting also includes investment funds such as ETFs . Funds are removed from trading if they do not have sufficient liquidity and trading activity on the part of investors, or after a change in investment strategy.
In each of these cases, delisting is the process of removing assets from public trading on the relevant market or platform.
The causes and consequences of delisting may differ depending on the market, situation, company or organization.