What is a Delisting?

Delisting is the process of removing a security from an exchange either voluntarily or involuntarily.  The majority of cases where a stock is delisted is as a result of not being able to meet the requirements of the respective exchange.  Most exchanges require that a stock have a minimum amount of market capital and a per share price value.  

Purpose of Exchange Requirements

Exchange requirements are the core to the integrity of the financial markets.  Before the U.S. government passed regulations, it was commonplace for companies to not report any financial reports.  Far too many times investors would put their hard earned money on the line with no indication of a company's health. Exchange requirements make it mandatory for companies to not only report their finances but to also have a minimum market capitalization in order to trade on an exchange.  These simple, yet effective rules prevent manipulators and fraudulent individuals from pumping cheap stocks.

How are Shareholders affected by a Delisting

Recently there have been a number of mortgage brokers and brokerage firms that have gone bankrupt as a result of the mortgage crisis.  Many investors are shareholders in these companies and unless they sell their stock ahead of time, they will be stuck holding the bag.  Some people believe that if a stock is delisted that they have completely loss their money.  While you may lose 95% of your investment, you still are a shareholder in the company.  For example, once Lehman filed for bankruptcy, they were delisted from the New York Stock Exchange and the ticker LEH was forever removed.  Lehman, however returned as LEHMQ.  Generally a stock will experience high trading volume shortly after it is delisted as more and more speculators attempt to get rich quick.  Within a few weeks, trading volume will completely diminish and there are a few poor souls holding the bag.