if you own delisted stock, how do you recoup your investment? we'll explain in detail what happens to your shares after a delisting, including when and how to sell them and how to trade them privately.
what happens to my shares after a delisting?
table of contents
- what delisting means and what's happening now
- what happens to my shares after delisting?
- what is a liquidation sale and how does it work?
- how to trade shares after a delisting
- possibility of getting my investment back in case of delisting
- frequently Asked Questions
- closing thoughts
what delisting means and the current status
in the first half of this year alone, three companies were delisted from the KOSPI and 14 from the KOSDAQ, meaning that more companies are being removed from the stock market than you might think. Delisting means that a company's eligibility to be listed on an exchange is revoked. the public can no longer freely trade the company's shares on the stock market.
the question on many investors' minds is this: If a company is delisted, are my shares completely gone? the answer is no. while the stock doesn't disappear, the way it trades and its value changes dramatically.
what happens to my shares if I delist?
delisting does not mean that the company itself will cease to exist. Companies on the delisted list can still continue to do business, so any shares you own will not disappear completely.
after delisting, the shares are converted into unlisted shares. you can't trade them on the stock market, but you can trade them on the OTC market. unlike the stock market, trading in unlisted stocks is done either directly between individuals or through a broker. of course, the trading volume is very low and illiquid, so it's hard to sell at the price you want.
in rare cases, this can be positive. there are some companies that go public again after delisting, such as Zinus and Journey. if a company successfully relists after delisting, investors who continue to hold their shares will be able to trade on the stock market again. if you can wait for the relisting, you have a chance to recover your investment.
but there's also a worst-case scenario. the company goes into bankruptcy or liquidation. in a stock bankruptcy, the process is governed by the principle of paying creditors first. when the company sells its remaining assets to pay off its debts, creditors get paid first, and only if there's money left over is it distributed to shareholders. in most cases, there's very little left for shareholders to receive - they're not getting their money back.
what is a liquidation and how does it work?
fortunately, investors are given one last chance. this is the liquidation period. once the delisting is finalized, there is a special period of seven trading days to trade the shares on the stock market.
the process is different from regular trading. the biggest difference is that there are no price limits. While regular stock trading has a set range of how much a stock can rise or fall in a day, there are no such limits in a liquidation sale. This means that a stock can drop by more than 90 percent in a single day.
the way you trade is also different. a systematic trade is executed in 30-minute increments using single-price trades. a single price trade pools all orders that come in over a period of time and trades at one price. sell orders are filled from the lower price, and buy orders are filled from the higher price.
during a clearance period, stock prices often drop sharply. as time goes on, the selling volume builds up and the price drops even further. Therefore, it is relatively advantageous to sell at the beginning of the liquidation period.
how to trade stocks after delisting
what if you missed the clearance period? there are still ways to trade the stock after it goes private.
the first is OTC market trading. trading unlisted stocks is usually done through OTC brokers like 38Communications or Cavey Securities. however, trading volumes are very low, and it's hard to find a buyer, and even if you do, the price is likely to be much lower than it was when it went public.
the second option is to wait for a relisting. If a company is successful in turning around and meets the listing requirements again, it can relist. however, this is a very rare event. it can take years to relist, and in the meantime, there's a risk that the company could become insolvent or bankrupt.
can I get my money back if I delist?
realistically, it's very difficult to recoup your investment in a delisted stock. if you're unable to sell during the liquidation period, you'll most likely have to take a big loss.
when a company goes into liquidation, shareholders are the last to be paid because of the rules of prioritizing creditors. after bank loans, corporate bonds, unpaid wages, etc. are paid off, only what's left over is distributed to shareholders. in practice, they often receive almost nothing.
therefore, it's wise to liquidate any stock that looks like it might be delisted in advance. once a delisting notice is issued, you need to be careful not to miss the liquidation period.
frequently asked questions
Q1. Will my shares be completely lost if delisted? A. No. The shares themselves don't disappear - they become unlisted and can be traded on the over-the-counter market. however, trading will be very difficult and the price will drop significantly.
Q2. When does the trading period start? A. It will last for 7 trading days after the delisting is finalized. you can check the exact timeline through the securities company or exchange announcement.
Q3. What should I be aware of during the liquidation period? A. There are no price limits, so the stock price can fluctuate significantly within a day. it is conducted as a single-price trade every 30 minutes, and the price tends to drop as time goes on, so it is advantageous to sell early in the day.
Q4. What are the chances of relisting after delisting? A. It's very rare. while there are some companies that have been successful in relisting, such as Genus and Journey, most companies do not. it is risky to hold shares with the expectation of relisting.
Q5. If a company goes bankrupt, will I get my investment back? A. It's almost impossible. in bankruptcy proceedings, creditors take priority over shareholders. Banks, creditors, employees, etc. are paid first, and only when there is money left over is it distributed to shareholders, which is usually nothing.
closing thoughts
delisting is a major event that can result in significant losses for investors. the seven-day trading window is often the last chance to recoup your investment. if you own a delisted stock, acting quickly is the best way to minimize your losses.
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