Delisting

Picture a bakery inside a famous mall's food court. To protect shoppers, the mall demands strict hygiene checks and open accounting books from every store. Now what if the bakery fakes its expiration dates, or can't pay its rent and sinks deep into debt? To keep shoppers from getting hurt, the mall eventually kicks that store out of the mall.

The stock market works the same way. Markets like KOSPI and KOSDAQ in Korea are huge financial malls where anyone can safely buy and sell company shares. To get your stock listed and traded there, your company has to pass a tough review. It has to show that it earns money in a healthy way and can handle its debts.

Suppose a company falls into serious debt and burns through its capital. Or suppose it fakes its accounting books and loses everyone's trust. Then the market's managers decide to remove it. Stripping a company of its right to trade on the stock market like this is called delisting.

Getting a delisting notice doesn't make your shares vanish into thin air. The shares are still a certificate of your ownership stake in the company.

The exchange opens a window of about 7 days, called the liquidation trading period, so shareholders can sell their shares one last time. During this window, there's no daily limit on how far the price can move. So the stock price often plunges.

Once liquidation trading ends, the shares become unlisted shares, which trade outside the regular market. Unlisted shares have no set exchange, so you have to find a buyer yourself. That makes them very hard to turn into cash. And if the company can't pay its debts and goes fully bankrupt, the shares can truly become worthless pieces of paper.

To be more precise, delisting isn't always a failing company being forced out. Sometimes a company chooses to leave the stock market on its own. This is called voluntary delisting.

Staying on the public stock market means reporting your business results every quarter. It also means keeping an eye on lots of small shareholders. Say a company wants a big restructuring with a long-term view, or wants to quietly start a new business. Pressure from the market can get in the way.

In that case, the major shareholder buys up most of the shares that small shareholders hold in the market, often through a tender offer. They usually pay a premium over the market price. Sometimes there's still a fight over whether the price is high enough. After collecting the shares, the company cancels its listing on its own and goes back to being a private company.