## Must-Read for U.S. Stock Investors: Why Do Stocks Get Delisted, and How to Save Your Holdings After Delisting?

When trading in U.S. stocks or other exchanges, investors may encounter situations where a stock stops trading. The most severe is **delisting**—which means the stock you hold could become worthless. Many only react hastily when faced with this situation, but understanding the delisting mechanism in advance allows you to make the right decisions at critical moments.

## What Exactly Is Delisting?

**Delisting refers to the process where a listed company is removed from the exchange because it no longer meets listing standards.** Once delisted, investors can no longer buy or sell the stock on that exchange, and the stock is completely withdrawn from the public market. At this point, the actual value of your holdings often shrinks significantly, and in some cases, may become worthless.

It’s important to note that delisting and trading halts are two completely different concepts:
- **Trading halt**: The stock temporarily stops trading but retains its listing status; the value of your holdings remains largely unchanged.
- **Delisting**: The stock is permanently removed from the exchange, and the value of your holdings faces major changes.

## Why Do Stocks Get Delisted in the U.S.?

Delisting mainly occurs due to the following reasons:

**Financial non-compliance is the primary trigger**

Companies that have consecutive years of losses, negative net assets, or have auditors issue qualified or adverse opinions may be placed on the delisting warning list by the exchange. For example, Chesapeake Energy filed for bankruptcy protection in 2020 and was delisted after completing restructuring in 2021.

**Violation of disclosure rules**

Failing to publish financial reports on time, falsifying revenue, or hiding material information can directly trigger delisting procedures. Luckin Coffee’s delisting from NASDAQ in 2020 due to financial fraud is a typical case.

**Voluntary privatization or buyout**

Some companies are delisted after being acquired by major shareholders or choosing to go private. Dell Technologies’ voluntary delisting from NASDAQ in 2013 for privatization is an example.

## The Complete Process of Delisting

Delisting is not an abrupt event; from warning to actual removal, it usually takes several months. Investors can stay informed through broker notifications or exchange announcements:

**Warning stage**: The exchange issues a warning letter, and the stock code may be marked with symbols like “*” or “ST” as an initial alert.

**Remediation period**: The company is given 3 to 6 months to rectify issues, such as supplementing financial reports, attracting new investors, or improving operations.

**Review stage**: If the company fails to meet improvement targets, the exchange holds a review meeting for final assessment and voting.

**Delisting announcement**: The exchange announces the specific delisting date. After the last trading day, the stock is officially removed from the market.

## Does a Delisted Stock Still Have Value?

Many investors believe delisting equals total loss, but the reality is more complex; the value depends on the reason for delisting and subsequent developments:

**Value increase during privatization**

When only 10% to 20% of a company's shares are publicly traded, major shareholders often buy back shares at a premium over the market price during specific periods. Holders should closely monitor company announcements to seize this potential profit opportunity.

**Bankruptcy liquidation results**

In bankruptcy proceedings, creditors are paid before shareholders, and common shareholders often receive distributions last. The result is that the stock’s value may approach zero or be unrecoverable.

**Low market cap causing liquidity crisis**

When stock prices are very low or the company's market value is tiny, trading volume often plummets, and few are willing to buy. Lucky investors might find buyers in the OTC or off-market, but if no one takes over, they risk total loss.

**Funds frozen due to violations**

If delisting occurs due to violations, investors’ holdings are often frozen and cannot be converted into cash. They must wait until the company completes legal procedures, during which they lose access to their funds.

**Possibility of re-listing**

Although less common, delisted stocks may be relisted after resolving issues or improving. Once relisted, frozen stocks become tradable again.

## How to Deal with the Risks of Stock Delisting?

**Prepare your investment portfolio in advance**

Diversification is the most effective way to mitigate delisting risk. Avoid concentrating large amounts of capital in a single stock or asset class. Based on your risk tolerance, consider the following allocations:

Risk-tolerant: CFDs 15%, stocks 50%, funds 30%, bank deposits 5%

Risk-neutral: CFDs 10%, stocks 35%, funds 35%, bank deposits 20%

Risk-averse: CFDs 5%, stocks 15%, funds 40%, bank deposits 40%

**Deeply analyze your investment goals**

Before purchasing stocks, carefully evaluate the company’s business prospects, industry position, financial health, and whether it meets the exchange’s listing requirements. Regularly review the operational status and financial reports of your holdings to detect risks early.

## How to Respond After Your Stock Is Delisted

Once a stock is officially delisted, investors still have several ways to attempt self-rescue:

**Step 1: Follow official information closely**

Companies will announce delisting dates and subsequent procedures on the official disclosure platform. Investors should actively monitor these announcements or inquire directly with their broker’s customer service. Do not sit idly by.

**Step 2: Assess buyback plans**

If the company proposes a buyback plan, investors need to decide whether to participate within the announcement period. Those accepting the buyback should complete the necessary procedures promptly; late submissions may forfeit rights. Those rejecting can continue holding but should be aware of potential liquidity issues.

**Step 3: Consider moving to the OTC market**

Some companies switch to OTC markets after delisting. Although trading volume is lower, investors can still buy or sell through brokers. If the company later improves its financials and possibly relists, holding the stock could be advantageous.

**Step 4: Deal with bankruptcy liquidation**

If delisting results from financial deterioration or bankruptcy, investors must patiently wait for the liquidation process. The company will liquidate assets and pay creditors first, with shareholders receiving distributions last. The amount recovered is often limited. Although the stock may become worthless, it can still be used as a tax deduction for investment losses.

**Step 5: Off-market trading and private transfers**

If the company does not offer buyback or OTC options, investors can seek buyers in the off-market space or negotiate private transfers with other shareholders. This requires completing transfer procedures, which can be clarified with brokers or the company’s stock transfer agent.

**Step 6: Tax planning**

If recovery is impossible, investors can declare the loss on their tax return to offset capital gains. If the company conducts a cash buyback, the gain or loss is based on actual proceeds. Consult a professional accountant to ensure proper reporting.

## Delisting vs. Trading Halt: How Should Investors Judge?

Are stock trading halts usually due to delisting? Not necessarily. Here are the core differences:

| Feature | Trading Halt | Delisting |
|---------|--------------|-----------|
| Type of halt | Short-term suspension | Permanent removal (delisting) |
| Does it exit the exchange? | No, listing remains | Yes, permanently removed |
| Impact on holdings | Generally unchanged (unless involving splits/mergers) | Likely to decline or become worthless |
| How should investors respond? | No need for excessive concern | Must take proactive action |

Trading halts usually do not require overreaction; focus on the company's major events before and after the halt that could impact the stock price. Long-term investors who bought at expected prices often do not adjust for short-term volatility caused by halts. Short-term traders should adjust strategies based on actual circumstances.

## Summary: Delisting Is Not Inevitable Doom

While delisting is a serious investment risk, it is not entirely preventable or unmanageable. The key is thorough research before buying, maintaining vigilance during holding, and acting promptly when delisting occurs. Remember: **If someone is willing to take over the stock and the assessment indicates potential loss, it’s better to sell quickly; if the assessment suggests potential profit (like privatization buybacks), patience is advisable.** Through diversification, regular monitoring, and active response, investors can minimize the risks associated with delisting.