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Definition of a Delisting
The process of removing the security from a stock exchange. This can be done on a mandatory basis by the Exchange or on a voluntary basis by the company itself.
After a stock has been delisted it can no longer be traded on that exchange and no official on-exchange price building is being tracked.
Reasons for Delistings
-The Company no longer complies with the Listing Requirements of the Exchange (see for more info below)
-The Company becomes a private company (the company might get bought by private equity buyers or the company might want to omit the additional bureaucratic procedures that come with being listed on a stock exchange like publication and disclosure requirements)
-Trading volumes on the exchange it whishes to delist are not sufficient to justify the listing fees (A company could have listed its shares on for example 7 exchanges. This means it has to pay 7 times the listing fees. If volumes on one of the exchanges don't merit those fees, the company might want to chose to delist itself.
-The company (usually the legal entity) is being liquidated (for example the owners of a subsidiary company that is listed independently on an exchange might chose to liquidate the subsidiary and bring all the assets into the parent company and have only the parent company listed on the exchange).
-The company declares a Bankruptcy (for example a company can default on paying their debt and file for bankruptcy protection).
Listing Requirements of Stock Exchanges
Every Exchange is free to set its own listing requirements so they will all differ. In summary, most of them will include factors like the market captitalisation of the company and minimum turnover. Most exchanges will also automatically proceed to delist stocks after they've become penny stocks (stocks worth less than a USD dollar equivalent).
Click here for a good example of the London Stock Exchange Listing requirements
Example of a Delisting that took place in reality:
MW TOPS Limited (the "Company")
Delisting of Company's shares from Euronext Amsterdam
Further to the announcement of the half yearly financial results of the Company released on 21 May, the Board of Directors of Euronext Amsterdam have now approved the request for the delisting of each class of shares in the Company (Euro shares: ISIN GG00B39VXT49, Sterling shares: ISIN GG00B39VY027, US$ shares: ISIN GG00B39VY134).
In accordance with the requirements of Euronext Amsterdam, the last day of trading of the Company's shares on Euronext Amsterdam is expected to be 30 June 2009, with the delisting becoming effective on 1 July 2009. The Company's shares will continue to be listed on the UK Official List and traded on the main market of the London Stock Exchange plc.
This document is for information purposes only and is not an offer to invest. "The Company is registered with the Dutch Authority for the Financial Markets as a collective investment scheme which may offer participations in The Netherlands pursuant to article 2:66 of the Financial Markets Supervision Act (Wet op het financieel toezicht)." All investments are subject to risk. Past performance is no guarantee of future returns. Prospective investors are advised to seek expert legal, financial, tax and other professional advice before making any investment decision. The value of investments may fluctuate. Results achieved in the past are no guarantee of future results.
Process of a delisting
1. In case a delisting is initiated by the Exchange, often it will issue warnings to the company first. If the company does still not comply with the listing rules after a while, the exchange will proceed to announce a Delisting.
2. If a Company decides to delist itself it has to request approval from the exchange and complete the appropriate documentation.
3. The decision to delist the company has to be announced and made public.
4. All shareholders will be notified and given time to think on what they want to do with the shares. (Often delisting from an exchange is followed by removal from the security from the Central Securities Depository of a country and cross border settlement to another country has to be arranged).
5. On the effective day of the Delisting the shares will cease trading on the Exchange and they will be booked out of the accounts of custodians, banks and broker dealers.
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