What Happens When A Stock Is Delisted? – (2 Methods To Sell Your Holding)
A delisted stock cannot be traded on any stock exchanges (NSE or BSE). However, if you bought shares of a delisted company, you’re still a shareholder and can sell your holdings to the over-the-counter market. But, you need to find an interested buyer outside the stock exchange.
You must know from the above paragraph and title that today’s topic is stock delisting and its consequences on retail investors.
In this guide, you’ll learn everything in depth about stock delisting, its meaning in the share market, and what to do if you buy shares of a delisted company.
Also Read: What is Unsettled Credit in the Stock Market
What is Stock Delisting?
Stock delisting is referred to when a company’s share is permanently withdrawn from the stock exchange for buying or selling purposes.
In simple words, retail investors cannot trade (buy or sell) shares of delisted companies on platforms like Zerodha, Ange One, Sharekhan, Groww, Upstock, Dhan, ICICIDirect, etc.
So, there will be absolutely no buying or selling activities, and the company will be removed from the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).
Market regulators, securities, and the Exchange Board of India (SEBI) govern the stock delisting process.
What Happens To Shareholders When a Company Delisted?
If a company is delisted from the stock exchange (share market), which means no buying or selling is allowed on the NSE and BSE.
However, people who bought shares in that company are still stakeholders and can sell it outside the exchange.
If you bought stocks of a particular company and it’s delisted from the stock exchange for some reason (voluntary or involuntary), then you cannot sell it on NSE or BSE, but you’re still a shareholder in that company.
How To Sell Delisted Shares?
If a company is delisted from the stock market, you cannot buy or sell its share on the stock exchange.
However, if a buyer is interested in that company, you can sell your stake on the over-the-counter market.
Also, if that company announces a buyback, you can sell your stake to promoters. However, the company announced a buyback when it voluntarily delisted itself from the stock exchange.
Why Does A Stock Delist From the Exchange?
Until now, you know enough about stock delisting and what to do if you’re a company shareholder.
Now, let’s understand why a stock delist from the exchange. So, there are mainly two types of stock delisting-
- Voluntary Delisting
- Involuantry Delisting
What Is Voluntary Delisting?
When a company permanently removes itself from the stock exchange due to a merger with another company, amalgamation, non-performance, etc., are known as voluntary delisting.
If a company voluntarily delists itself from the stock exchange, the promoters will announce a buyback through a reverse book-building process. Shareholders can also hold that company share until they find a buyer.
What Is Involuntary Delisting?
If a company is forcefully delisted from the stock exchange due to non-compliance with the listing guidelines, late filing of reports, and low share price is known as involuntary delisting.
If you’ve shares of an involuntary delisted company, then you can only sell it through off-market transactions.
Also, promoters of involuntary delisted companies must buy back the shares at the value determined by an independent evaluator.
Can A Delisted Share Come Back?
Yes, a delisted company can return if SEBI and the market regulators allow it. However, there are certain guidelines for relisting on the stock exchange.
- Re-listing of voluntarily delisted stocks: There is a five-year cooling period for re-listing on the stock exchange if a share is voluntarily delisted. This means voluntarily delisted stocks can only be re-listed after 5 years.
- Re-listing on involuntary delisted stocks: If a stock is involuntarily delisted from the stock exchange, it can only be re-listed after 10 years.
Do I Lose Money If A Stock Is Delisted?
Security and Exchange Board of India (SEBI) and market regulators have strict rules that promoters of a delisted company will buy back the shares at a value determined by an independent evaluator.
However, the buyback price of a delisted share depends upon a third-party evaluator. So, there is always a risk that you might have to share your stocks in the loss.
Moreover, you don’t lose all your money if a stock is delisted from the share market. Still, there is a chance that you’ll make some loss.
Now you know what happens when a stock is delisted from the stock exchange. A voluntarily delisted company buys back shares from retailers through a book-building process, or shareholders can hold their stocks until they find an interested buyer.
Conclusion
No transactions are allowed for delisted stocks via stock exchange platforms. So, you need to sell your holding via off-market transactions. But, as a retail investor, I advise you to be informed of company news and sell your holdings before that stock is delisted.
