What is Delisting in stock market?

ICICI Securities has been in the news due to the ongoing delisting process. So what exactly is delisting, and why is ICICI securities delisting? Let’s find out with these 2 part series.

Part 1 - Delisting

Disclaimer

First things first, all of our content is provided for the purpose of education and understanding and not for inducing, advising investments

Please consult a SEBI registered Investment Advisor (for India) for your investment

decisions.

What is Delisting?

It means that the shares of a company will not be traded on any or all stock exchange.

Why is it done?

It can be done by the company at its own wish for reasons such as wanting to go private or to merge with another company etc. This is known as Voluntary Delisting.

In some cases Delisiting has to be done compulsorily, if the company fails to meet the rules and requirements such as failing to report its earnings on time. This is known as Involuntary or Compulsory Delisting.

Who governs the Delisting process?

Securities and Exchange Board of India (SEBI) oversees this process.

The rules for this process as are provided under the "Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2021 [Last amended on August 3, 2021]” available at SEBI’s website.

What happens to the shareholders of a delisted company?

In such cases the shareholders have the following options

1. They can sell their shares.

2. They can hold their shares in which case even though they cannot trade such shares at the stock exchange, they remain the company’s shareholders and enjoy the rights of being a shareholder such as

- right to vote

- right to inspect books of the company etc.

3. Swapping of shares - Here the shareholders of a delisting company are offered the shares of another company. This is usually the case when the delisting company is merging with or being acquired by another company and that company’s shares are being provided.

E.g., for every 100 shares of ICICI securities, the shareholders have been offered 67 shares of ICICI bank.

Where can a shareholder of delisted company sell their shares?

The first option to sell the shares is available in a process known as reverse book building process, in which the promoters of the company offer to buy these shares from the shareholders.

Reverse Book Building in itself deserves a post but in short, in this method the price at which the shares are bought is the price at which maximum number of shareholders are willing to sell their shares.

For instance, one shareholder may quote Rs.100 per share, while another may quote Rs.150 per share for their shares, the promoter will not simply buy at different prices from each shareholder, instead they will watch all the prices quoted by different shareholders and the price which is quoted maxium number of times will be taken as the price.

It is also important to note that in case the price which is quoted maximum number of times is not acceptable to the promoter, they can refuse to buy the shares. So there is an element of uncertanity until the shares are sold.

The second option is to sell it outside the stock exchange, which is commonly known as Over the Counter (OTC) Market. Here, instead of having a governing body like SEBI overlooking the transaction of shares, the shareholder directly deals with interested buyer and sells at the price which both parties agree to. This method has low liquidity and often the shareholders have to wait for a long time to find the buyer at their desired price.

Can a Delisted company be relisted on the stock market?

Yes, a Delisted company can be relisted on the stock market, even if it was forced to delist earlier. But, there are certain conditions for it.

The requirement of appropriate paperwork and listing criteria has to fulfilled similar to how an IPO is done.

Also there is also a waiting period before the company can be relisted.

1. The Voluntary Delisted company has to wait for 5 years before it can be relisted on the stock exchange.

2. The Involuntarily Delisted company has to wait for 10 years before it can be relisted on the stock exchange.

We hope you understood the Delisiting process. In Part 2 we will cover why ICICI Securities is delisting and what is going on with it.