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Today is the course series “20 Lectures on US Stock Investment”

Lecture 6“Looking at the US Stock Delisting System from Lucky Coffee”

Friends of the cows quickly move the little benches, let's go to class together~

Whether you pay attention to US stocks or not,”$Lucky Coffee (LKNCY.US) $You must have heard of “fraud incidents”.

The company was suspended on the NASDAQ on June 29 and then officially delisted. From the launch of a new pet to a chicken feather in one place, Ruixing only took less than a year.

Taking advantage of the Lucky Incident, today we'll talk about the US stock delisting mechanism to help investors avoid minefields.

I. Delisting mechanism for US stocks

There are two main forms of delisting for companies listed in the US: mandatory delisting and voluntary delisting.

First,When a listed company is unable to meet the financial standards or market-based standards for continuous listing, or violates relevant exchange regulations, it will be forcibly delisted. For example, indicators such as market capitalization and stock prices are not up to standard, financial fraud (such as Lucky Coffee), bankruptcy, or liquidation, etc.

Generally, as soon as news of forced delisting comes out, the market's confidence in enterprises will collapse (especially financial fraud). Immediately after that, stock prices will plummet, stock trading volume will decline, liquidity will decline, and investors will bear huge losses of principal.

SecondlyVoluntary delisting is entirely due to the decision of a listed company to voluntarily choose to delist due to business development and structural changes, such as believing that value is underestimated (Like the strange tiger back then360), too low transaction volume to achieve financing goals, corporate acquisitions and restructuring, privatization and delisting, etc.

In contrast to forced delisting, the offer price given by privatized delisting usually has a premium of 10% or more, so it will support short-term stock prices.

(1)NYSE delisting rules

The New York Stock Exchange stipulates that those who have the following circumstances will be delisted:

1) The number of public shareholders does not meet the standards set by the exchange;

2) Stock trading volume has shrunk extremely, falling below the minimum standard set by the exchange;

3) Loss of ability to operate continuously due to factors such as asset disposal and freezing;

3) The court declared the company bankrupt and liquidated;

4) Poor financial conditions and operating performance;

5) Failure to comply with the obligation to disclose information;

6) Violation of the law;

7) Violation of the listing agreement.

When a company is delisted, the NYSE allows the company to have a rectification period of 18 months. After 18 months, if the rectification successfully meets the listing criteria, it can resume trading. If the company still does not meet the criteria for continued listing, it will only be delisted after procedures such as review and hearing.

(2)Nasdaq delisting rules

Listed companies will not be able to retain their listing eligibility if they do not meet the following continuing requirements:

1) Tangible net assets must not be less than 2 million US dollars;

2) The market value must not be less than 35 million US dollars;

3) Net income shall not be less than 500,000 US dollars for the most recent fiscal year or two of the last three fiscal years;

4) The number of shares held by the public shall not be less than 500,000 shares;

5) The market value of shares held by the public shall not be less than 1 million US dollars;

6) The minimum stated purchase price shall not be less than 1 US dollar;

7) The number of market makers must not be less than 2;

8) The number of shareholders must not be less than 300.

In detail!

If a company's closing price continues to fall below $1 for 30 trading days, NASDAQ will issue a correction notice to the companyMeasures must be taken to restore the stock price to above $1 for 180 days (90 days for market capitalization that does not meet the standard), and keep the stock price above $1 for at least 10 consecutive days before the end of the period to avoid delisting.

If the deadline is reached and the standards are not met, NASDAQ will issue a delisting notice to the company.After receiving the delisting notice, the listed company has the right to file an appeal with the NASDAQ Hearing Committee.In the appeal, the company needs to submit a detailed plan to maintain listing standards to the committee. If the appeal fails, it can continue to appeal to the Securities Regulatory Commission or the federal court, but at this time the delisting procedure is unavoidable.

2. After delisting

Company privatization and delistingIn this case, the controlling shareholder will issue an announcement to repurchase all tradable shares in the market at a specific price within a specific period of time, so that the listed company will be delisted from the exchange and become a private company.

Privatization acquisitions are usually at a premium, and the purchase price will be at least 10% higher than the market price of the stock.

If the company is bought by an offer, the retail investor accepts the offer and agrees to sell the current position at the purchase price. After the acquisition is completed, retail investors are no longer shareholders of the acquiring company or the acquired company.

If a share exchange offer is received, the retail investor will receive shares of the purchaser company or newly issued shares, and the retail investor will become a shareholder of the acquiring company or a shareholder of the new company.

Also, stocks that are forcibly delisted from the NYSE or NASDAQ may continue to be traded, but they will change places——Over-the-counter trading system (OTCBB) or pink note market. namelyIn a private market, it is impossible to order from a normal brokerage channel during normal trading hours by entrusting orders.

The class representative summed it up in one sentence. The biggest characteristic of this market is the trading of unlisted and delisted stocks.

These two trading platforms are far less regulated than the main exchange. Compared to the two, OTCBB is more strict.

• OTC counter trading system——OTCBB

OTCBB is a trading intermediary managed by the National Association of Securities Dealers, the manager of NASDAQ. Judging from the setup logic, one of the functions of this type of market is to allow companies that are delisted due to poor financial conditions to have a “temporary place”. If the company manages properly thereafter, there is also a possibility of returning to the main board markets such as the NASDAQ and NYSE.

Historically, there are not many examples of companies entering the OTC market after delisting and then returning to the motherboard marketHowever, Ruixing's problem is not mismanagement, but rather financial fraud. Facing a class action lawsuit from American investors, Bloomberg claims that the lawsuit claims may be as high as 10 billion US dollars or more.

• Pink List Market——Pink sheet

Fanlist is the primary stock market in the OTC market. It is established by a national pricing agency. There are no special standards for listing in the Pink List market. Market makers only need to fill out a form that truly reflects the issuer's current situation to submit for review. Moreover, the Pink List Market does not review the issuer's financial status, nor does it require the company to disclose information regularly after listing.

Therefore, if the OTCBB listing requirements are not met, the delisted company may be listed on Pink Sheet. It's worth mentioning thatLucky Coffee is currently on the Fanshan Market.

That's all for today's story!

Ruixing's frenzy came to an abrupt end, reminding listed companies time and time again:

“Honesty” is more important than “confidence”!

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Tomorrow's 7th lecture “Listen to Buffett buy index funds, let's first understand the index composition of US stocks!” Waiting for you!

See you soon!!

Course link attached:“20 Lectures on US Stock Investment”