The global financial crisis took its toll on stock prices — especially on bank stocks like Citigroup (C), Bank of America (BAC) and Barclays PLC (BCS) — that are listed on the New York Stock Exchange (NYSE).
This raises an interesting question: what if stock prices were ever to drop too low? Will the NYSE start delisting stocks? What does this mean?
[VIDEO] What Happens if NYSE Delists a Stock?
What Is Delisting?
Delisting is the process of taking a stock off of the exchange where it is currently listed.
You see, stock exchanges — like the NYSE, the NASDAQ and the American Stock Exchange—give stock traders a place to come and buy and sell stocks and get price quote information by listing stocks on their exchange. If a stock is not listed, there is no public forum where stock traders can go to get information about and execute trades on the stock.
Of course, just because a stock gets delisted by one exchange doesn’t mean that it cannot be listed on another stock exchange, but being delisted puts a negative stigma on the stock itself.
Why Would The NYSE Delist a Stock?
The NYSE and other stock exchanges have minimum requirements a stock must meet to maintain its listing on the exchange. If a stock does not meet those minimum requirements, it will be delisted.
For instance, the NYSE has a rule that the 30-day average price of a stock must remain above $1. Unfortunately, one of the members of the Dow Jones Industrial Average, American International Group (NYSE: AIG), is currently listed on the NYSE, but it is trading for less than $1 per share and is at risk of being delisted.
Ultimately, stock exchanges delist stocks for the following two reasons:
- They want to maintain their premier image, which helps them attract premier stocks, by disassociating themselves from less-than-premier stocks.
- They earn money whenever a stock trades that is listed on the exchange, and premier stocks tend to have more volume than less-than-premier stocks do.
Image courtesy Solidariat.