Guide to Stock Exchange Delisting

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Delisting is an administrative process, involving the permanent removal of stock from active trading. Possible reasons for such an approach may be due to a firm going private in a private equity transaction, or the avoidance of full disclosure obligations of listed companies.

This usually takes place when a business entity goes into insolvency or fails to satisfy the listing rules of a stock market, or alternatively switches to becoming a private business entity following a merger or acquisition.

Delisting also happens in the event that a company aims to scale down regulatory reporting obligations, in some instances the stock volumes on the exchange may be deemed too insignificant to warrant participation.

A delisting can also go through the admissions office of the respective stock exchange supervisory or led by the Financial Services Authority when normal trading in the securities can not be guaranteed.

The Stock Exchange Act imposes that the investor has to be allowed to effect a delisting for whatever reasons. The stock exchange regulations of the various stock exchanges handle the issue differently, some stock exchange institute a pre-announcement period starting from from six months. Within this period, the shareholders of the company concerned can not sell their shares on the stock market.

In countries such as the U.S. securities delisted from a stock exchange based on reasons which do not include going private or insolvency can be sold on over-the-counter markets.

The conditions of the stock corporation delistings are not regulated by law, delisting applications by a corporation simply need to be decided during the shareholders meeting. And basically the act of delisting pertains to the practical removal of the stock of a company from a stock market such that investors cease being in a position to trade shares on that particular platform.

In addition, a public offer to purchase the company itself or of the majority shareholder to the other shareholders is required thus allowing shareholders to place their shares on the stock.

Whenever, compensation is offered it may still have to undergo judicial review in the appraisal proceedings at the request of shareholders, thus ensuring that shareholders can withdraw from settlement with the true value of their shares from the company if they so wish.

The amount of severance pay will be set correctly, as a rule, according to the three-month weighted average share price preceding the announcement of the proposed delisting. This is particularly as a result of the perceived market value of the shares which are free of speculative elements. Following the declaration of the intention to delist there is always a risk that the stock price speculation can be distorted.

 

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