Working with securities, the investor counts on profit, but capital gains are possible only if there are no cataclysms with the shares, which cannot be ruled out. For example, in March 2022, trading on the Moscow Exchange stopped for more than 20 days.
After the company places its shares on the stock exchange, its securities begin to be quoted and are listed. Delisting is when the process begins to move in the opposite direction and securities are excluded from quotation lists and removed from trading. The reasons for this process may be different, the results too.
Delisting on the Russian and foreign markets is not the same thing at all. In foreign stock markets, delisting is a complete exclusion from the circulation of securities. The company loses its public status if it becomes possible to delist its shares, after which it receives the status of a private company.
In Russia, after the delisting of shares, the company still retains its public status and no restrictions are imposed on its securities; they also continue to be traded at over-the-counter auctions. Sometimes trading in one or more shares may be stopped, but they will not be excluded from the lists. This case does not fall under the definition of “delisting”.
About types and causes
Shares can be excluded from the listing either by force or at the request of the issuer. In order to be included in the quotation lists, the issuer must fulfill certain conditions regarding corporate governance, the amount of capital and other reporting. Also, he must fully comply with the set of rules given in the agreements for the placement of shares.
If these rules are nevertheless violated, then this will be the basis for the exclusion of shares from circulation by force. There are many reasons for this:
– the issue of shares for some reason did not take place;
– registration of the issue was declared invalid;
— an order from the competent authorities or the regulator;
— the issuer was declared bankrupt or its enterprise passed under external management;
— the issuer has not made transactions with shares for a long time;
– laws have been violated;
— the rules for inclusion in the listing were violated.
When a delisting is carried out forcibly, this is evidence that the company is going through hard times. The issuer is trying to prevent such a situation, as this negatively affects its rating and causes a negative information background, which in turn causes a decrease in investor interest.
Sometimes the issuer itself withdraws its securities due to changes that have occurred related to the reorganization of the company or a change of jurisdiction. There may be other reasons for delisting. For example, an issue of securities may be withdrawn from circulation if they are redeemed ahead of schedule. Another reason is compliance with the law.
How is delisting done?
Delisting is carried out in several stages, regardless of who initiated it:
– An application is submitted to the listing department, which indicates all the violations allowed by the company.
– The decision is made within a month.
– If the decision is positive, then the delisting procedure is launched, and investors are immediately informed about it.
This process is regulated by the law on shares and the functioning of joint-stock companies.
How to be an investor
Shareholders find themselves in a difficult situation if the cause of delisting was the bankruptcy of the issuer. They will receive their money only after full settlement of all debts of the company is made. It is not always possible for shareholders to return all their funds. So what should an investor do?
With forced delisting, an excellent way out of this situation may be to sell securities before they are withdrawn from trading. In this way, you can return at least part of the money. Most likely, this part will be very insignificant. However, most investors will choose this path, which will cause stock prices to fall due to an increase in the number of sellers.
You can wait for the announcement of the offer, which is announced a month before the delisting at the initiative of the company. In this case, the shares can be redeemed at the weighted average price for the auctions made in the last 6 months. The offer becomes more attractive if the securities are consolidated. The share price can also be attractive if the delisting was initiated due to a merger or acquisition of one company by another.
If we talk about Russian companies, then here you can not sell shares before delisting. The issuer’s shares may increase in price if it continues to have a public status. This can be a good source of income for the holder, but it will not be easy to find a counterparty in this situation.
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