Delisting from shares – what is it and how does it threaten the investor

Every company that wants to go public must undergo the admission-listing process. It could be the primary step when the company first goes public, and second when it comes to the appearance of additional shares on a different trading platform, such as or on specific currencies.

Listing on an exchange for stocks is the most efficient way to provide securities to a broad range of investors. This lets you get funding and gain advantages including loans, tax incentives and a simplified process for mergers and acquisitions, and more. businesses.

To be included in the listing, the company has to submit an application to be registered in the securities list and submits financial documents. Exchange specialists review the application and evaluate the legitimacy of the company that is the source. If everything goes as planned it is agreed with the company regarding including shares on the listing.

The list is divided into several levels. It is set from the market on the evaluation of the credibility of the company. The higher the rating that is higher, the greater the clearance requirement. The three stages of listing are in the markets:

  • The first is a list of quotations of titles at the first level. This list includes the shares of the biggest and most liquid companies that have huge capitalization.
  • Second List of quotations of securities that are second-tier. There are smaller firms here that have fewer requirements. For instance, a promise of no default or loss for one year, not three as is the case with the titles at the top levels. They are also reputable businesses that have done well in the test, however, they are viewed as riskier for investment.
  • Third Third. To be eligible for this level the company must satisfy three requirements: adhere to laws, release details about its business operations, and sign with the appropriate authorities. The decision to invest money in such ventures is associated with a greater risk.

A company is not able to only be listed on the stock exchange and then exit the market. This reverse process is known as delisting. It comes with a variety of advantages for investors who hold shares. Let’s take a look in more in-depth.

What is an equity write-off?

Simply put delisting refers to the removal of securities from an exchange’s listing. For US floorings for trading it signifies a complete cessation of trading on shares of the company. The company loses its public status and is made private. In Russia Securities can remain traded, however, only on the over-the-counter market. The process of deregistration has two reasons, which determine the nature of the process.

The right to cancel the contract is at your discretion.

The issuer starts the process of eliminating securities and resolving the business problems it faces. It could be due to payment issues in gaining acceptance to stock markets, or the decision of the major shareholders to put their shares in their own hands. This is to consolidate them and expand their shares.

A private company could purchase the business and then reorganize the company This is why the removal of the company from the stock exchange is required. Furthermore, two publicly traded firms can join and remove their shares from the stock exchange at any time in order to be able to rejoin the market. This is among the most well-known reasons to be delisted on this US market.

Sometimes, the issuer has no intends to be a public company and is not willing to reveal its financial results. Additionally, the company might not be investing as effectively as it had hoped so it’s not economically viable to remain on the market for stocks.

Strength radiation

In this case, delisting occurs when the organization ceases to meet the requirements of the exchange. Causes: low sales volume, financial problems, bankruptcy, concealment of important business information, inaccurate financial statements, violations of law and other rules of organized commerce.

Depending on the violations, the exchange lowers the issuer to the required level or excludes it altogether. Such control is necessary to protect investors. By understanding a company’s rating level, you can properly assess the risks.

Delisting rules

The procedure takes place in several stages. First, the stock exchange or issuer submits requests for withdrawal of securities to the listing service. The request is examined within 30 days, then a verdict is rendered. If it is positive, the main shareholders notify the other holders of the start of the delisting of the shares on the stock exchange and publicly announce the procedure for buying back shares or the rules for their subsequent holding.

What does delisting mean for shareholders?

Companies are trying to prevent exit from the market. After all, this lowers the issuer’s rating, deprives it of the influx of new investments, reduces liquidity, and also creates an unfavorable information environment. Investors may think the company has some issues with the business and start turning down investments in any form.

Either way, if the business you owned is delisted, you have a few options left.

Sell ​​shares. This position is usually taken if the company has declared bankruptcy. It’s the worst possible reason to leave. Here, the investor can receive his funds when the issuer repays all debts.

But after the bonds are paid, the company may simply run out of money to settle with shareholders. It is therefore preferable to sell securities before they are excluded from stock exchanges, ie when the news appears in the media that a delisting is in preparation.

Get an offer. If the company itself decides to leave the exchange, it first makes an offer. According to her, the organization buys assets from investors at a price not lower than the weighted average cost of the last six months. As part of the offer, the owner of the shares sells them if he wishes. However, the main shareholder, if he owns 95% of the securities, can forcibly buy out the shares of other investors.

Do not sell shares. This option should be considered if the company regularly transfers dividends and it has a good dividend history. Despite the fact that the securities are no longer traded on the stock exchange, you still retain ownership of them while retaining the right to payment of dividends.

This option has a disadvantage – the securities are more difficult to sell, since they are traded in the over-the-counter market. You will have to search and wait longer for a buyer, as well as negotiate a price.

Examples of delisting shares of Russian companies

In 2019, the mobile operator Megafon withdrew from the list and share buyback with investors. The securities have been trading on the market since 2011. The reason for leaving is financial problems and a decrease in capitalization. MegaFon also decided to focus on investment in development and new projects. Therefore, it would not be able to pay dividends, and without them, the shares would not attract as many new investors.

Automaker AvtoVAZ left the Moscow Stock Exchange in 2018, delisting and offering shareholders a takeover offer. He traded in the securities market for 10 years, but for 4 years before the decision to leave, he suffered losses and took out loans. In this situation, management decided to improve financial performance, since registration was an additional cost item.

Polymetal shares were excluded from the trading list in 2012 due to the fact that the main shareholders carried out the consolidation of the main stake and increased their stake in the company to 99.48%. Subsequently, they exercised their right to the compulsory redemption of the shares remaining floating. However, a year later, Polymetal decided to return to the stock exchange and is still listed there.

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