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What to Do If a Stock You Own Gets Delisted

A stock can be delisted—or removed from a major stock exchange—for a variety of reasons, including for failing to meet market-capitalization or share-price minimums. However, the issue made headlines late last year when the Holding Foreign Companies Accountable Act (HFCAA) required foreign companies to submit their financial audits to U.S. regulators—or face being delisted.1

The law puts investors in the more than 200 U.S.-listed Chinese companies in a particularly precarious position because the Chinese government doesn’t allow outside oversight into its auditing processes.

So, what happens when a stock you own is in danger of being delisted—and what can you do in response? That depends on the reason for the delisting.

1. The company fails to meet listing requirements

You generally have a few options:

  • Hold and trade the shares via a dealer network—also known as over-the-counter trading (OTC)—rather than on a centralized exchange. That said, “Be aware that failing to meet minimum listing requirements may indicate a company is struggling, so reassess your reasons for holding the shares before going the OTC route,” says Randy Frederick, vice president of trading and derivatives at the Schwab Center for Financial Research.
  • If you’re holding delisted American depositary receipts or American depositary shares—which represent foreign ordinary shares (ORDs) owned by a sponsoring bank—you could either sell them back to the bank or ask the bank to convert the shares to ORDs, likely for a fee. ORDs can then be traded on a foreign exchange (if available) or OTC through your brokerage.
  • Sell your shares before the stock is delisted. (This is your only option if your shares are being delisted as a result of the HFCAA.)

2. The company is acquired or goes private

Shareholders typically vote on the terms of the sale or buyout, and generally can exchange their shares for cash in the case of a private sale, or for cash and/or shares in the acquiring company in the event of an acquisition.

3. The company files for bankruptcy

Bankruptcy commonly wipes out a company’s original shares, and usually shareholders aren’t entitled to newly issued stock as a replacement if the company emerges from bankruptcy. “You could see some cash from the liquidation of the company once creditors, bondholders, and preferred shareholders are paid out, but it’s likely to be only cents on the dollar,” Randy says. “A better approach is to keep close tabs on your holdings so you aren’t blindsided.”

Investing in stocks via an exchange-traded fund or mutual fund can help mitigate these and other risks by spreading your investment dollars across dozens or even hundreds of companies. “Plus, it’s the fund manager’s job to stay on top of important developments—including potential delistings,” Randy says.

1As things stand now, securities regulators could bar trading in a company’s stock—including trading over the counter—if the company fails to provide the required documents for three consecutive years.

What You Can Do Next

Learn more about trading individual foreign stocks on foreign exchanges through a Schwab Global Account™.

Important Disclosures:

Investors should consider carefully information contained in the prospectus or, if available, the summary prospectus, including investment objectives, risks, charges, and expenses. Please read it carefully before investing.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Investing involves risk, including loss of principal.

International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate this risk.

The Schwab Global Account is restricted to certain account types. Only U.S. citizens residing in the United States are eligible.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

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