Table Of Content
What Does It Mean When a Stock Gets Delisted?
When a stock is delisted, it means it is removed from a major stock exchange like the NYSE or Nasdaq. This can happen for several reasons, but it always results in the stock no longer being traded on that exchange.
Delisting doesn’t necessarily mean the company is bankrupt, but it often signals financial trouble or failure to meet listing standards.
Here’s what happens when a stock is delisted:
Trading typically moves to over-the-counter (OTC) markets, which are less liquid and riskier.
Investors can still sell their shares, but often at lower prices due to reduced demand.
The company’s credibility may suffer, making it harder to raise capital or attract new investors.
Shareholders are not notified in advance, so it's important to monitor any warning signs.
Why Do Companies Get Delisted?
There are both involuntary and voluntary reasons why companies get delisted. Common causes include:
Failure to meet financial requirements: Exchanges like the Nasdaq require companies to maintain a minimum share price (usually $1) and market cap.
Bankruptcy or financial distress: A company that files for bankruptcy protection, such as Hertz during the 2020 pandemic, may be delisted to protect investors and maintain exchange integrity.
Lack of compliance or transparency: Companies that fail to file timely financial reports or violate exchange rules (like failing audits or misleading disclosures) can be delisted.
Going private or mergers: Sometimes a company chooses to delist voluntarily, often after being acquired. For instance, Twitter was delisted after Elon Musk completed its purchase.
These outcomes vary depending on the company’s intent and financial health. But in all cases, investors should be aware that delisting typically increases risk and limits trading options.
Here are some common examples of famous stocks that have been delisted:
Company | Year Delisted | Reason for Delisting |
|---|---|---|
Twitter | 2022 | Voluntary – Going Private |
Hertz Global | 2020 | Bankruptcy |
Luckin Coffee | 2020 | Fraud and Regulatory Violations |
Alibaba (Ant Group affiliate) | N/A (IPO canceled) | Regulatory/Compliance Issues |
Enron | 2001 | Bankruptcy and Accounting Fraud |
What Are Your Options If You Own a Delisted Stock?
If a stock you own gets delisted, your investment doesn’t immediately become worthless—but it does become riskier and harder to manage. Here are your main options, depending on the case:
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If the Stock Was Involuntarily Delisted
Involuntary delisting occurs when a company is removed due to failure to meet listing requirements, bankruptcy, fraud, or non-compliance. These situations are more unpredictable and risky for shareholders.
Sell on OTC markets: If the company continues operations, the stock often trades on over-the-counter markets like Pink Sheets. Liquidity is usually lower, and prices can drop significantly.
Wait and hold: In rare cases, companies recover. Hertz filed for bankruptcy and was delisted in 2020, but restructured and relisted in 2021. However, this is the exception, not the rule.
- Explore tax write-offs: If the stock becomes worthless, you may be able to claim a capital loss on your taxes. This can offset gains in other investments.
Involuntary delisting usually signals trouble, and investors need to act quickly to evaluate the remaining value—or cut losses.
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If the Stock Was Voluntarily Delisted
Voluntary delisting usually happens when a company chooses to go private, merge with another company, or move to a different exchange.
Here’s how it works and what to expect:
Cash buyouts: If the buyer is offering a fixed price per share (as Elon Musk did with Twitter at $54.20 per share), you will receive that amount for each share you hold — usually deposited directly into your brokerage account once the deal closes.
Stock-for-stock deals: In some mergers, instead of cash, you may receive shares in the acquiring company. For example, when Sprint merged with T-Mobile, Sprint shareholders received T-Mobile stock instead of holding delisted Sprint shares.
No action required: If you're a shareholder of record, these transactions often happen automatically. However, your broker might notify you about the timeline, tax implications, or any special paperwork if it's a complex offer.
How to Know If a Stock Is at Risk of Delisting?
Delisting rarely happens without warning. You can spot signs if you know what to look for.
Consistently low stock price: Exchanges like Nasdaq often warn companies when their stock stays below $1 for an extended period. If no action is taken, delisting may follow.
Missed financial filings: Late or missing SEC filings—like quarterly earnings or audited financials—are red flags. In 2020, Luckin Coffee missed several reports before being delisted.
Bankruptcy warnings or SEC investigations: Companies under investigation or filing for Chapter 11 often face forced delisting. This happened with Enron and WorldCom.
Exchange warnings or notices: Public notices from the NYSE or Nasdaq (often labeled as “non-compliance” warnings) are usually the final step before delisting begins.
Keeping track of press releases, SEC filings, and financial news can help investors identify these warning signs early.
FAQ
Not necessarily. While some delistings are due to bankruptcy, others happen for strategic reasons like mergers or going private.
You won’t always get a personal alert, but public warnings are issued by the exchange. It's important to track news, SEC filings, or broker updates.
Robinhood typically doesn’t support OTC or delisted stock trading. You may need to transfer your holdings to a full-service broker like Fidelity or Schwab.
No. The stock may still have value and trade on OTC markets, though with lower liquidity and higher risk.
Most funds must maintain liquidity, so they often sell delisted holdings quickly. However, some may retain them temporarily if part of a reorganization.
It varies. Companies often receive 6-month grace periods after a warning notice, but delisting can happen faster in severe cases like fraud or bankruptcy.
You may have legal options if fraud or mismanagement is involved. Class action lawsuits sometimes recover partial compensation for shareholders.
Yes. These stocks often lack transparency and trade on illiquid markets, making them speculative and high risk.
If the company continues operating and is profitable, it may still pay dividends, but this is uncommon for delisted firms.
Not directly. A delisted company can still operate normally, but it often faces challenges raising capital or attracting investors.
Yes, but data is harder to find. OTC markets publish some trading info, though it's not as transparent or reliable as major exchanges.
Possibly. Some brokers charge extra for OTC trading or transfers, so it's worth checking your platform's fee schedule.
