Will delisting from US stocks cause loss of investment principal? Understanding the delisting process is key to timely self-rescue

What is the most feared situation in stock investing? It’s not price fluctuations, but delisting. Delisting means that the stocks you hold may become untradeable from then on, or even result in total loss of capital. This impact on investors is far more severe than a market decline. Especially for investors in U.S. stocks, facing complex cross-border regulations, it’s crucial to understand all possible scenarios of delisting in advance.

What exactly is stock delisting? How is it different from trading halts?

Many people confuse “trading halt” and “delisting,” but these are two completely different concepts.

Trading halt is usually a short-term suspension of trading, often due to major company announcements, shareholding changes, or regulatory approval processes. During a halt, ownership of the stock remains valid, and trading can resume once the halt is lifted. Delisting, on the other hand, is a permanent exit from the trading market—listed companies that fail to meet listing standards or voluntarily apply for delisting will be removed from the exchange. Once delisted, investors can no longer buy or sell the stock on that exchange, and the stock loses liquidity.

It’s especially important to note that after delisting, investors still own the stock, but its value may change depending on how the company handles subsequent procedures. In the U.S. markets, Nasdaq and NYSE have clear delisting standards; companies that do not meet these criteria will be delisted.

Why do stocks get delisted? The three common reasons

1. Continuous financial deterioration

Persistent losses, negative net worth, or financial statements rejected or with unqualified opinions from auditors are main reasons for exchanges to initiate delisting review. For example, Chesapeake Energy Corporation, a natural gas producer, filed for bankruptcy protection in June 2020 and completed restructuring in February 2021—classic cases of delisting due to financial difficulties.

2. Disclosure violations or fraud

Failing to disclose financial reports as required, inflating revenue, or hiding material information can lead to regulatory delisting sanctions. Luckin Coffee, a Chinese online coffee chain, was delisted from Nasdaq in April 2020 due to financial fraud, serving as a warning case in the U.S. stock market.

3. Voluntary privatization or acquisition

When a company decides to go private or is fully acquired by a parent company, it may proactively apply for delisting. Dell Technologies, for example, delisted from Nasdaq in 2013 to go private, driven by strategic considerations.

How long does the delisting process take? What warning signs should investors watch for?

Delisting is not an abrupt event; the entire process usually takes 3-6 months, giving investors ample time to prepare:

Stage 1 — Warning phase: The exchange issues a warning, and the stock name is marked with symbols like “*” or “ST.” This is the first alert for investors, who should closely monitor company announcements and subsequent developments.

Stage 2 — Remediation period: The company enters a 3-6 month improvement window, during which it must submit supplementary financial reports, seek investor support, and improve financial health. Investors can assess risks based on the company’s progress.

Stage 3 — Review phase: If improvement targets are not met, the exchange holds a review meeting to vote on whether to proceed with delisting.

Stage 4 — Official delisting: The exchange announces the delisting date. After the last trading day, the stock is officially removed from listing.

Are delisted stocks really worthless?

There’s no absolute answer; it depends on the reason for delisting and how the company handles subsequent procedures:

Privately delisted companies: If free float shares account for only 10%-20%, major shareholders often buy back these shares at a premium within a certain period. Shareholders should stay alert to company announcements and seize buyback opportunities.

Bankruptcy liquidation: This is the worst case. According to bankruptcy law, creditors are paid first, common shareholders are last, and investors may receive nothing, with stock value approaching zero.

Low market value or share price: Although trading on the exchange ceases, investors can still find buyers through over-the-counter (OTC) trading, but liquidity drops sharply, making it difficult to find a buyer.

Delisting due to violations: Stocks may be “frozen,” preventing trading. Investors must wait for the company to complete legal procedures before funds can be recovered, resulting in capital being effectively immobilized.

Re-listing or OTC trading: This is relatively ideal. Stocks can continue trading on OTC markets (though with limited liquidity). If the company improves its finances and meets listing standards, re-listing may occur. Investors can choose to hold long-term and wait for recovery.

How should investors prevent delisting risks?

Establish a scientific asset allocation

Diversification is key to reducing delisting risk. Adjust according to risk appetite:

Aggressive investors: CFDs 15%, stocks 50%, funds 30%, bank deposits 5%

Balanced investors: CFDs 10%, stocks 35%, funds 35%, bank deposits 20%

Conservative investors: CFDs 5%, stocks 15%, funds 40%, bank deposits 40%

Strengthen due diligence before investing

Before purchasing any stock, analyze:

• The company’s core business prospects and market position
• Financial statements and profit trends over the past three years
• Whether it meets the exchange’s listing maintenance criteria
• Presence of major violations or regulatory risks
• Industry peer performance comparison

Especially when investing in U.S. stocks, pay attention to SEC regulatory trends and the delisting standards unique to the U.S. market.

If the stock you hold has been delisted, how can you rescue yourself?

If you are unfortunate enough to hold a stock entering delisting procedures, here are some common responses:

1. Closely monitor official announcements

Before official delisting, the company will publish subsequent handling plans, including whether buybacks are offered, if the stock will switch to OTC, or if liquidation procedures will commence. Investors should proactively check the official disclosure platforms or confirm details with their broker to avoid missing critical deadlines.

2. Evaluate buyback schemes

If a buyback plan is offered, investors need to decide whether to participate within the announcement period. Acceptance requires completing relevant procedures; missing the deadline forfeits the right. Rejecting buyback means holding the stock further, but liquidity will significantly decline afterward.

3. Transition to OTC market

Some companies switch to OTC markets. Although trading volume is much lower than on the main exchange, stocks can still be bought and sold through brokers. If the company later improves its finances and meets listing standards, re-listing may be possible. Investors can choose to hold long-term and wait for recovery.

4. Over-the-counter or private transfer

After delisting, investors can still privately transfer stocks with other shareholders, but must complete formal transfer procedures. This often involves directly contacting the company’s share registrar or using broker-assisted transfer.

5. Tax reporting and loss deduction

If stocks become unrecoverable due to delisting, investors can report the loss to tax authorities to offset capital gains. It’s advisable to consult an accountant or tax professional to ensure proper procedures.

Final advice

A delisted stock does not mean complete investment failure. The key is to stay informed and respond appropriately. If the potential loss after delisting is high, it’s better to cut losses early. If the company has a chance to relist, holding and waiting for recovery can be an option. Regardless, regularly reviewing your portfolio and early detection of risk signals are the best ways to protect your capital.