What Happens When A Stock Gets Delisted From The Stock Market?

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Stocks are the small units in which the ownership and capital of the company is divided. In many countries, stocks are also known as shares. A single stock represents fractional ownership in the company, fraction of the company’s earnings and voting power. There are various types of stocks. Some have increased voting rights, and others have no voting right, some have higher earnings while others have priority over other shares to get a dividend.
The earliest stock trading takes us back to 1250. Around 1250 in France, 100 shares of Bazacle milling company were traded. A shareholder is a person who owns one or more shares in a company. Both private and public companies can have shareholders. The price of shares keeps on fluctuating due to the theory of demand and supply. The cost of these shares is mostly determined by the market forces of demand and supply.

The stock market

What Happens When Stock Suffers Delisting?

When a company’s stock gets delisted, it gives a very negative impact on the market. This usually means that the company is about to go bankrupt. In such cases it is advised to the shareholders to sell their stocks and recover their money as ownership in an insolvent company is not worth anything. This is a very negative situation for the company as in majority cases when the stocks of a company get delisted it happens because of poor performance.

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If any person still owns any delisted stock, then they have the same rights and ownership in the company. The person who owns a delisted stock, usually faces enormous financial loss. The delisted stocks are traded over the counter through market makers; the pricing of these stocks is provided by over the counter bulletin board.

Reasons For Delisting A Stock

Delisting of stock

1. Involuntary Delisting

When the financial performance of a company gets so weak that it comes on the verge of bankruptcy, its shares get delisted from the stock exchange. When a company’s stock suffers delisting, it showcases a negative image of the company. The shareholders have their rights and ownership, but due to the financial loss, experts advise them to sell these shares. These shares are difficult to sell as they shrink too much as per the market rates.

2. Company’s Choice

It is possible for companies to voluntarily get delisted from the stock exchange. This creates a positive image of the company as it means that the company is financially stable. This delisting can happen when one buys the shares by an equity company, so the company goes private. The possible causes for a company to delist their stock is going private, merging with other companies, financial restructuring and changing their trade symbol.

What Happens When Stock Suffers Delisting?

Delisting of a stock

When a company’s stock suffers delisting, it leaves a very negative impact on the market. This usually means that the company is about to go bankrupt. In such cases experts advise the shareholders to sell their stocks and recover their money as ownership in a bankrupt company is not worth anything. This is a very negative situation for the company as in majority cases the poor performance of the company results in the delisting of the stocks.
If any person still owns any delisted stock, then they have the same rights and ownership in the company. The person who owns a delisted stock, usually faces substantial financial loss. Companies trade these stocks over the counter through market makers; the pricing of these stocks is provided by over the counter bulletin board.

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1. Effects Ownership

Ownership of stock offers certain rights, dividend income and ownership in the company. When a stock goes through delisting, the owners have their voting right and property in the company, but these rights become worthless. We advise one to trade stock as soon as it suffers delisting; otherwise, the company faces huge financial losses.

Buying/selling stocks

2. The Decline In Value

Stock delisting shows a negative image of the company. At this time, people sell their stocks as soon as possible to avoid financial losses. This causes a decline in the prices of the shares. There is no benefit in holding stocks that have gone through delisting, so shareholders sell their stocks as early as possible, hence, avoiding losses. This rapid sale of stocks causes a massive decline in the value of the shares, as it is true that holding shares of a bankrupt company is not worth anything.

3. A Decline In Liquidity

One of the most significant advantages of owning a share is high liquidity. One can trade these shares within minutes, and it is effortless to trade shares. In the case of delisting, one cannot buy the shares anywhere else except over the counter market. Over the counter markets, selling the shares is tough as access to buyers here is difficult. It becomes tough to trade shares in over the counter market, and the liquidity becomes very less.

Stock market

Conclusion

A stock delisting may be due to voluntary and involuntary reasons. However, we advise keeping a proper track of the financial performance of the company so that the company can avoid financial losses. When a company’s stock suffers delisting, it gives a very negative impact on the market. This usually means that the company is about to go bankrupt. In such cases, experts advise the shareholders to sell their stocks and recover their money as ownership in a bankrupt company is not worth anything. As the company is bankrupt, so it is better to sell the shares as ownership in an insolvent company is worth nothing. Experts advise doing proper time to time research of the company’s performance so that the company may avoid such losses.

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