Will you get a refund if a stock is delisted? The 5 major risks to know before investing and a self-help guide

Have you ever worried that the stocks you hold might suddenly be delisted, resulting in a total loss of your investment? While delisting does indeed involve returning money, the key lies in how much and how it is returned. This guide will help you understand the full picture of delisting and teach you how to self-rescue when a crisis occurs.

What is stock delisting? Why are stocks removed from the exchange?

Stock delisting, officially known as “delisting,” refers to the termination of a listed company’s trading qualification on a stock exchange due to violations of exchange regulations or voluntary application. Once a stock is delisted, investors can no longer buy or sell that stock on the exchange, and the stock in their possession will lose liquidity.

It is important to note that delisting and over-the-counter (OTC) trading are fundamentally different: delisting means the company exits the exchange market, while OTC refers to companies on the OTC market (like the OTC Center) being terminated from trading.

Why are stocks forced to be delisted?

Common reasons for delisting fall into three main categories:

1. Financial Crisis — Continuous losses, financial report falsification

When a company reports consecutive losses, negative net worth, or auditors issue adverse opinions, the exchange will place it on a delisting review list. If the company fails to turn the situation around within the improvement period, it will ultimately be ordered to delist.

A typical example is Chesapeake Energy, a natural gas producer, which filed for bankruptcy protection in 2020 and completed restructuring the following year. Another example is Luckin Coffee, which was delisted from NASDAQ in April 2020 due to financial fraud allegations.

2. Violations — Failure to disclose information legally, insider trading

Violations such as failing to disclose financial reports on time, inflating revenue, or concealing material information will trigger delisting procedures. Regulatory agencies’ zero-tolerance attitude makes compliance risks a lifeline for listed companies.

3. Active strategies — Privatization or acquisition

Some companies choose to be acquired by parent companies or voluntarily privatize to reduce regulatory burdens. Dell Technologies’ delisting from NASDAQ in 2013 to achieve privatization is a typical strategic delisting.

From warning to termination: the process of stock delisting

Stock delisting is not sudden; the entire process usually takes several months. As long as you closely monitor broker notifications and exchange announcements, you can respond in time:

Stage 1: Warning risk

The exchange issues a “disposal warning letter,” marking the stock code with an asterisk “*” or “ST” (e.g., “*XX Electronics”). This is the first alert for investors. At this stage, you should stay alert and pay attention to the company’s developments.

Stage 2: Remediation window

The company is granted a 3 to 6-month period to improve, which can include supplementing financial reports, introducing strategic investors, or increasing capital to improve financial health. This period is a critical opportunity for investors to decide whether to hold or exit.

Stage 3: Review decision

If the company fails to meet improvement goals, the exchange will hold a review meeting to formally decide whether to delist. The outcome is basically determined at this stage, and the delisting date approaches.

Stage 4: Official delisting

The exchange announces the specific delisting date. After the last trading day, the stock officially exits the market and can no longer be publicly traded.

Are delisted stocks still useful? The truth about getting your money back

Delisted stocks do not completely lose their value, but whether you can get your money back and how much depends on the reason for delisting and the company’s subsequent handling plan:

Privatization: Potential appreciation

When the company’s circulating shares account for only 10% to 20%, major shareholders often buy back shares at a price higher than the current market price within a specific period. In this case, your stock may appreciate. The key is to keep an eye on company announcements and not miss the buyback opportunity.

Bankruptcy liquidation: Almost total loss

In bankruptcy liquidation, the repayment order is: creditors first, shareholders last. As a common shareholder, you usually cannot recover your investment, and the stock value approaches zero. Unless the company has remaining assets after liquidation, the risk of losing everything is very high.

Market value too low, stock price bottomed out: Liquidity exhaustion

These stocks have extremely poor liquidity, and few are willing to take over. Lucky investors might find buyers on the OTC or in the market, but those with bad luck face total loss.

Violations leading to delisting: Funds frozen

Investors’ holdings are “frozen,” unable to convert into cash, and must wait for the company to complete legal procedures. During this waiting period, you essentially lose the use of your funds.

Re-listing of stocks: Turn of events

In theory, delisted stocks still have the possibility of re-listing. If the company improves and regains listing qualification, your stocks can circulate again, and there might even be appreciation due to restructuring during suspension.

Trading suspension ≠ delisting, do not confuse the two

Many investors mistakenly equate “trading suspension” with “delisting.” In fact, they are fundamentally different:

Trading suspension may only be a short-term halt; the stock remains on the exchange and can resume trading in the future. Delisting means permanent exit from the exchange, with the stock being delisted. Short-term suspensions are usually caused by major company events (such as mergers, restructuring, or financial report releases), so investors need not worry excessively.

Long-term investors who bought at a price meeting expectations generally do not need to take special action during suspensions caused by major events, tending to hold long-term. Short-term traders should adjust their strategies based on actual situations.

Will delisted stocks return your money? Six handling options

When a company announces delisting, investors should immediately initiate the following response procedures:

Option 1: Closely follow company announcements

Before the stock is officially delisted, the company must publish the delisting date and subsequent handling methods (buyback, OTC listing, or liquidation) on the Market Observation Station. Investors should actively track announcements or contact their broker directly to confirm details and obtain first-hand information.

Option 2: Participate in company buyback

If the company proposes a buyback plan, you can choose whether to participate. Those accepting the buyback must complete procedures within the announcement period; overdue, they will lose the buyback rights. Be sure to handle this promptly. Those who do not accept the buyback can continue holding the stock, but subsequent liquidity may significantly decline.

Option 3: Transfer to OTC market

If the company switches to OTC trading, although trading volume is lower, you can still buy and sell through your broker. If the company improves its financial situation in the future, there is a possibility of re-listing. At this point, retaining the stock is the best strategy.

Option 4: Face bankruptcy liquidation

If the delisting reason is financial deterioration or bankruptcy liquidation, you need to patiently wait for the liquidation process to complete. The company will distribute remaining assets according to law, but shareholders are usually last in line, and the actual recoverable amount is limited. The stock value may approach zero, but it can serve as a basis for tax deduction of investment losses.

Option 5: Actively negotiate transfer

If the company does not offer buyback or OTC options, you can still privately negotiate with other shareholders to transfer your shares, but the transfer must go through the company’s registration procedures. You can also consult your broker or the company’s shareholder services to understand the specific transfer and registration process.

Option 6: Tax declaration and profit/loss handling

If the stock is permanently untradeable due to delisting and you are certain you cannot recover your investment, you can declare it as an investment loss to offset capital gains. If the company conducts a cash buyback, calculate gains or losses based on the actual amount received. It is recommended to consult an accountant or tax advisor to ensure proper reporting procedures.

How to prevent the risk of stock delisting?

Instead of passively responding to delisting, actively avoiding the risk is more effective. Delisting has a profound impact on investors; apart from some privatization cases, most investors face significant losses. Therefore, before purchasing stocks, you must carefully analyze:

• Company business prospects and market position: Is it in a declining industry? Is its market share stable?
• Financial health: Is net worth positive? Is cash flow sufficient? Are there signs of continuous losses?
• Listing compliance: Does the company meet exchange listing requirements? Are there violations?
• Potential risks: Industry regulation, technological obsolescence, management crises, and other hidden dangers?

Diversification is the most effective risk prevention method. Avoid over-concentrating funds in a single stock or asset class; build a balanced portfolio with high- and low-risk assets:

• Risk-loving: 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%

Through diversified allocation, even if one stock is delisted, it will not cause a fatal blow to your overall assets.

Key reminder: delisting is not the end of the world

Many people mistakenly believe that “delisting means losing everything,” but in fact, as long as you stay informed and respond properly, you can still minimize losses.

If you assess that the potential loss after delisting is large, and there are willing buyers, act quickly to sell. If your assessment indicates a high chance of profit (such as privatization buyback), hold on and wait for news of high-price recovery. Lastly, remember that there is still a theoretical possibility of re-listing after delisting; the key is to stay alert to information and make correct decisions at each critical node.