I found out through the old co-worker grapevine that a company I used to work for is going to be de-listed by NASDAQ because the stock price has been under a dollar per share for quite a while and because the company’s earning statements are routinely significantly corrected when audited. As a result, revised earning statements have to be issued, which differ materially from the originals.
I was wondering what becomes of a stock after it gets de-listed. Does it get picked up by another exchange? Does it revert to being a privately held company, with payoffs being made to shareholders like a buyout? Is the company forced into receivership? What happens?
If there are public shareholders outstanding, and no resolution of assets has been determined by a bankruptcy court, the stock can continue to trade as an over-the-counter stock:
It can also get relisted if the stock stays over $1 or $2,not really sure for a specified period of time,and it’s financial statements are issued in the manner prescribed by the SEC/Nasdaq.
Usually delisted stocks carry an E symbol after their stock symbol,eg,ABC becomes ABCE,and you can get quotes on the regular online qoutation services,except you only get the closing price.If you don’t see a quote for your stock you may be in deep water.
The site on the link appears to have realtime quotes.
It does not revert to being a privately held company. There shareholders are still the owners. It’s just that the share price has gotten low. Even if the share price has not fallen, the shareholders of a delisted company still own the company. It is just more difficult to buy/sell the shares.
Technically, an over-the-counter stock is one on NASDAQ (or, at least, NASDAQ used to be the old OTC exchange). Ringo is correct about the pink sheets – if a stock isn’t listed on any exchange, the stock is traded using them. As the name indicates, they are (or were) pink sheets of paper listing shares available for stocks not listed on any exchange.
The disadvantage of this is that it’s much harder to buy and sell stock. No one is “making a market” – having a ready supply of shares on hand. Thus you have to be hooked up with a buyer (vice versa if you want to buy) in order to sell your stock. This takes time, and since stocks at this level can be very volatile*, that can be a major problem.
*They are known – listed or not – as “penny stocks” and there are strict regulations about how stockbrokers can sell them. It’s illegal, for instance, for a stockbroker to recommend a penny stock to a client unless the client meet certain criteria (like a history of buying them). The client asking to buy penny stocks for the first time is required to listen to disclaimers up the wazoo.
Being de-listed on the surface doesn’t affect the company directly. But it can have big indirect effects. As well as the difficulties mentioned above, virtually all (or just plain all?) stock funds have rules forbidding them from owning unlisted stocks. So your company, upon being de-listed, suddenly finds institutional buyers and such (which make up the bulk of the stock buyers) dumping your stock and driving it down further. Thanks to the dot-com bubble collapse, there have been amazing reverse stock splits, like 12-1, to try and keep some companies listed. (And which generally haven’t worked.)
Regarding the penny stock issue: it really is considered a much higher risk area because of the impact a quarter point decline can have on your investment. If IBM drops 50 cents you’re still okay. If idiotdot.com drops 50 cents it’s bankrupt. Who wants to worry all the time over a 50 cent change?