Delisting

Reviewed by Vishnu | Updated on Aug 26, 2020

Introduction

Delisting can occur either by a company's voluntary decision or by the regulatory authority's (Securities and Exchange Board of India) decision to delist the company for violation of regulations.

Understanding Delisting

In order to list securities on the stock exchange, there are certain guidelines laid out by the market regulator, i. e. SEBI that a company is required to follow. Failure to comply with the norms can result in the company's securities being delisted from the stock exchange.

Delisting can be broadly classified into two types: 1. Voluntary delisting 2. Compulsory delisting

What You Must Know

As per Rule 21A of the Securities Contract Regulation Act and the Securities Contract (Regulation) Rules, 1957, a company's securities will be mandatorily delisted if:

  1. The company's director has been convicted for non-compliance with the rules and regulations of the Depositories Act and SEBI Act. Also, the company should have incurred a loss of Rs.1 crore or more.

  2. The company's shares are being traded irregularly for the previous three years.

  3. The company's trading activities have been halted for more than six months.

  4. The company has been experiencing losses for three straight years, and the company's liabilities are exceeding its assets and the stakeholders' equity combined.

Voluntary delisting occurs when the listed company decides to delist its securities from the stock exchange. The reason for such an action can be the below-par performances of the securities on the exchange or a merger/acquisition of the listed company with another.

In case a company wishes to get delisted from a stock exchange, the entity will be required to follow a set of guidelines. That is, the company will have to obtain the shareholders' approval prior to being delisted post, which they will be offered an exit option.