How Does a Stock Get Delisted?
The San Francisco Chronicle reports today that the grocery delivery company Webvan and the online magazine (and Slate competitor) Salon are both about to be delisted from the Nasdaq stock exchange. How does a stock get delisted, and what do the shareholders do when a stock has been kicked off an exchange?
Both major stock exchanges--Nasdaq and the New York Stock Exchange (NYSE)--require listed stocks to maintain a trading price of $1 or more. If a company trades for less than $1 per share for 30 consecutive trading days, as Webvan and Salon have, the process of delisting begins. Each exchange has its own rules about various company problems that could lead to delisting and its own procedures for notification and appeal of a possible delisting. In the case of Nasdaq stocks that fall below the trading minimum, Nasdaq sends a warning that the company has 90 days to get the stock trading at an acceptable level. If the company is unable to do so, Nasdaq then notifies the company of its imminent delisting. A company then has one week to issue a press release telling the world, and its stockholders, the bad news. Failure to issue the release results in a trading halt. Within that seven-day period, the company can also request a hearing to appeal the delisting decision. If it fails in its appeals to Nasdaq, the company can take its case to the SEC and then on to the federal courts. On Nasdaq the delisting procedure for various violations of the exchange's standards can take anywhere from 30 days to seven months. In the first quarter of this year, Nasdaq delisted 95 stocks. That compares to 240 for last year and 440 for 1999. So far this year the NYSE has delisted 17 stocks compared to 61 last year and 58 for 1999.
Once a company is delisted, shareholders have a chance to wonder, "Why, why, why did I ever listen to that stock tip from Uncle Lou?" Being delisted from one exchange does not prevent a stock from getting listed on another, but it must meet that exchange's listing requirements. The stock can also be traded on two different quotation services: the Over the Counter Bulletin Board, which has minimal financial reporting requirements, or on the Pink Sheets, which do not have reporting requirements. Of course, the company could reorganize, turn itself around, get relisted, and prove that Uncle Lou was right after all.