The average investor will buy stocks that are listed on national stock exchanges. The trades are initially made through a broker, whether online or traditional, yet ultimately the trade is sent through an exchange. What many investors had failed to consider, until the recent market downturn, is that a stock can be delisted just as easily as it can be listed if it fails to meet the minimum requirements of the exchange.
A stock might be delisted for a number of reasons, including falling below the established threshold of number of outstanding shares, trading below a minimum share price, or the market value of all outstanding shares falling below a certain total value. Each exchange has different rules for listing and delisting stocks, and each usually have a grace period, such as 30 business days, before they delist a stock.
But what happens if a stock is delisted that you currently own? Can it be traded?
The answer is yes, it can be traded. Delisted stocks can be traded on either the Over the Counter Bulletin Board (OTCBB), or more often the Pink Sheets. Both carry significant risk and very little regulation. Trades through either of these services can usually be handled through your broker, even an online broker. Investors may purchase these shares because they expect the company to avoid bankruptcy and eventually recover its value. Some investors only trade shares of delisted stocks in hopes of profiting from an extremely under-valued company.
One thing to keep in mind if you hold a newly delisted stock is that institutional investors and funds often have restrictions on trading in stocks that do not trade on one of the major exchanges, such as the New York Stock Exchange (NYSE) or NASDAQ. Thus, those investors and institutions may begin to liquidate their positions, thereby devaluing the stock even further. Unless you are extremely confident in the companies ability to recover, you might consider cutting your loses and dumping the stock as soon as possible.
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