What are the rules behind the delisting of a stock?

Delisting occurs when a listed security is removed from the exchange on which it trades. A stock may be removed from an exchange if the company for which the stock is issued is not in compliance with the listing requirements of the exchange.

The criteria to remain listed on an exchange differs from one exchange to another. On the New York Stock Exchange (NYSE), for instance, if a security's price closed below $1.00 for 30 consecutive trading days then the exchange would initiate the delisting process. Also, exchanges charge annual listing fees that companies must pay in order to stay listed. Beyond that, there are also significant legal and compliance costs associated with a company's listing.

In addition to the price and fee criteria, the major exchanges also monitor market capitalization, shareholders' equity and revenue, but the price criteria is most common.

When a security is found to be not in compliance the exchange issues the company a notification of non-compliance, but the stock is not immediately taken off the stock exchange. This letter gives the company the opportunity to respond with a description of the actions they are taking, or plan to take, to become compliant with continued listing standards. If the company doesn't respond with their plan of action within 10 business days of the receipt of the letter, the exchange would proceed with the delisting. If the exchange accepts the plan, the company's financial progress will be monitored by the exchange according to the milestones outlined in the plan.

In addition, you can identify which companies are non-compliant by looking at a list published by exchanges on non-compliant securities. You can also identify them directly if their stock symbol has the indicator "BC" attached to the end of it. Note that even though these companies are non-compliant they are still allowed to trade normally on the exchange. Most major exchanges have similar delisting rules and compliance process. (For more in-depth information on delistings, refer to "The Dirt on Delisted Stocks.")