You don't automatically lose money as an investor, but being delisted carries a stigma and is generally a sign that a company is bankrupt, near-bankrupt, or can't meet the exchange's minimum financial requirements for other reasons. Delisting also tends to prompt institutional investors to not continue to invest.
Delisting is a financial term describing a phenomenon where a listed security is removed from the exchange on which it trades. While it can happen for many reasons, it's usually not a good sign for the stock since it's likely failing to follow the exchange requirements.
Delisting does not necessarily make the stock worthless (although the company is probably not in good shape at this point). Regardless of the reason for the company's delisting, you would still need to sell these stocks through your broker in order to claim the losses in most cases.
Typically, a security that has been delisted will stay within your account until the company is either relisted, pays off all debtors/owners, or is declared worthless. The position will continue to show in your account until one of these events occurs.
You should also know that delisting doesn't impact the number of shares you hold or whether you still have a stake in the company, it just impacts where those shares trade. Delisted shares may continue to trade over-the-counter, which could reduce liquidity and lead to less transparency from the company.
If you own securities, including stocks, and they become totally worthless, you have a capital loss but not a deduction for bad debt. Worthless securities also include securities that you abandon.
Relisting of voluntarily delisted stocks: Such shares will have to wait five years from their delisting date to get relisted again. Compulsory delisting: If a company has been delisted compulsorily, they will have to wait for 10 years before they can be listed again on the exchanges.
So though the shares are not traded on the stock exchanges after delisting, they are still there in your demat account. So, delisting cannot amount to extinguishment of the shares or your rights in the shares.
If someone misses applying for the delisting, they can tender the shares offline directly to the company, and the company will buy them back. Shareholders will have a one-year period from the date of unlisting to tender the shares to the company.
Many companies can and have returned to compliance and relisted on a major exchange like the Nasdaq after delisting. To be relisted, a company has to meet all the same requirements it had to meet to be listed in the first place.
A company's shares listed on Nasdaq are required to maintain a closing bid price of no less than $1.00 per share (Minimum Bid Price Requirement). If the closing bid price of a company's shares are below $1.00 for 30 consecutive trading days, the company is considered to be in violation of Minimum Bid Price Requirement.
When a stock is delisted, options trading on that stock typically ceases. This means that options holders are no longer able to buy or sell their options on the open market. However, they still have the right to exercise their options if they choose to do so.
The Impact of Delisting on Investors
However, a delisted stock often experiences significant or total devaluation.
One of the primary benefits of delisting is the significant reduction in compliance costs and the regulatory burden that accompanies being a publicly traded entity.
If the security cannot be sold in the market, it may be possible to dispose of the worthless security by gifting it to another person who can be related or unrelated to you. If you gift the worthless security to a family member, you will need to ensure that the person is not your spouse or minor child.
When a stock's value falls to zero, or near zero, it typically signals that the company is bankrupt. The stocks are frozen and unless the company restructures, it's likely you will lose your investment.
What happens when an investor maintains a short position in a company that gets delisted and declares bankruptcy? The answer is simple: The investor never has to pay back anyone because the shares are worthless. Companies sometimes declare bankruptcy with little warning. Other times, there is a slow fade to the end.
Delisted stocks will not be automatically removed/ liquidated from a user's account. The user can submit orders if the client wishes to remove or liquidate them. When a stock becomes delisted it will usually be quoted and traded over the counter (OTC).
It may be surprising to hear, but delistings are not a rare occurrence in the stock market. Between 2020 and 2021, exchanges such as the NYSE and NASDAQ witnessed over 170 stocks delist for a variety of reasons.
Delisting of shares can have significant consequences for shareholders, ranging from reduced liquidity to potential loss in value. It's essential for investors to stay informed about the reasons behind the delisting and how it may affect their investments.
Worthless stocks have a market value of zero, while penny stocks generally have market values of less than $5.
If you still hold shares after they are delisted, you can sell them—just not on the exchange on which they traded before. Stock exchanges are very advantageous for buying and selling shares. When they delist and trade over the counter (OTC), selling shares and getting a reasonable price for them becomes much harder.
If the delisting happens a year after the security has been purchased, capital gains tax is not charged. However, if the delisting takes place within a year, whatever gain is made will be taxable, based on the tax slab of the individual.