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Key Points
- Delisting happens when a company merges with another, ends operations, declares bankruptcy, or does not meet listing requirements.
- Delisted stocks from NYSE and Nasdaq move to Over The Counter (OTC) markets, which do not have the same regulations as traditional exchanges and may have limited liquidity.
- Robinhood does not support OTC trading, so if a stock is delisted, you can only sell it but not buy additional shares.
- Delisted stocks may drop in value, and there may be no one interested in buying them.
It would be alarming to open your Robinhood account to find one of your stocks missing from your portfolio. But there’s no need to panic. There are practical reasons why this may happen. So, what happens when a Robinhood stock gets delisted? Let's dive in.
Stocks often disappear as a result of corporate actions such as stock splits or company mergers. This type of corporate action may also result in a stock appearing in your Robinhood account.
The most common reason Robinhood stocks disappear is reverse stock splits. When a company executes a reverse split, the number of its shares decreases but the value of each share increases. Companies sometimes split their stock to boost its price and avoid getting delisted.
Keep in mind that a reverse stock split can signal a company facing some kind of financial failure since it raises the value of otherwise low-priced shares.
Ok, so what is delisting? How does it happen? And what are your options if it happens to a stock you own? Let's answer those questions and more in this article.
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What Is Delisting?
Delisting happens as a result of a company ending operations, declaring bankruptcy, merging with another company, or not meeting listing requirements. In some instances, a stock can be delisted if a company goes private. Delisting is not a decision made by Robinhood or another brokerage.
Listing requirements vary slightly by exchange. With most exchanges, the requirements include market capitalization and liquidity. A firm must also be current on their listing fee. If these requirements are not met, a stock could be delisted.
Once a stock delists for one of the reasons mentioned above, the Robinhood in-app market data will no longer reflect the current trading price. You will need to find stock quotes somewhere else for an idea of what price your sell order will execute at if you choose to close the position.
Why Could A Robinhood Stock Be Delisted?
One of your Robinhood stocks can delist from the NYSE or Nasdaq for several reasons. A stock may be delisted if the company that issued the stock has been bought and gone private, or if it has fallen short of an exchange's listing requirements. Stocks delisted from the NYSE and Nasdaq disappear from Robinhood.
When a stock is delisted from the NYSE or Nasdaq, it will move to Over The Counter (OTC) markets, often under a slightly different ticker symbol.
What Are OTC Markets?
OTC markets are those where investors trade directly with buyers without the use of a central exchange or any other third party. This means the exchange industry rules and regulations are not in place to protect investors.
OTC markets do not have physical locations or market-makers, and in general are less transparent than stocks operating within the industry requirements.
What Can I Do With My Delisted Robinhood Stock?
Robinhood doesn’t currently support OTC trading. Therefore, if your stock is delisted from the NYSE or Nasdaq, Robinhood will only let you sell the stock, but not buy additional shares.
Bear in mind that the prices of delisted stocks can drop significantly. You can only sell a delisted Robinhood stock at its current price on the OTC market, and there may be no one interested in buying it. OTC markets often suffer from limited liquidity, as many investors shy away from buying them.
I am an expert in finance and trading with a deep understanding of stock markets, corporate actions, and brokerage platforms. My knowledge is grounded in both theoretical concepts and practical experience, allowing me to provide valuable insights into the complexities of the financial world.
Now, let's break down the key concepts used in the article:
1. Delisting
- Definition: Delisting occurs when a company is removed from a stock exchange for various reasons, such as mergers, bankruptcy, ending operations, or failure to meet listing requirements.
- Evidence: Delisting is not a decision made by Robinhood or other brokerages. It is a result of actions taken by the company or non-compliance with exchange requirements.
2. OTC Markets (Over The Counter)
- Definition: OTC markets are platforms where stocks are traded directly between buyers and sellers without the involvement of a centralized exchange. Delisted stocks from NYSE and Nasdaq often move to OTC markets.
- Evidence: OTC markets lack the same regulations as traditional exchanges and may have limited liquidity. Robinhood does not support OTC trading, meaning you can only sell a delisted stock, not buy additional shares.
3. Reverse Stock Splits
- Definition: A corporate action where a company reduces its number of outstanding shares, increasing the value of each share. It's often done to boost the stock price and avoid delisting.
- Evidence: Reverse stock splits can lead to stocks disappearing from a portfolio on platforms like Robinhood. This action may signal financial difficulties for the company.
4. Reasons for Delisting
- Explanation: Delisting can happen due to a company going private, declaring bankruptcy, merging with another company, or failing to meet exchange listing requirements.
- Evidence: Listing requirements vary by exchange, including factors like market capitalization, liquidity, and payment of listing fees.
5. OTC Market Characteristics
- Explanation: OTC markets lack physical locations, market-makers, and transparency compared to traditional stock exchanges.
- Evidence: OTC markets operate without industry regulations, potentially exposing investors to higher risks.
6. Robinhood's Handling of Delisted Stocks
- Explanation: Robinhood does not support OTC trading, and if a stock is delisted, users can only sell it but cannot buy additional shares.
- Evidence: Prices of delisted stocks can drop significantly, and limited liquidity in OTC markets may result in challenges selling the stock.
In conclusion, this article provides a comprehensive understanding of delisting, OTC markets, and how Robinhood handles delisted stocks, offering practical insights and advice for investors facing such situations.
