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Delisting: This happens when you withdraw from the stock exchange

Every now and then there are companies that decide to turn their backs on the trading floor. But what exactly happens in the event of a delisting?

• Delisting corresponds to the revocation of the admission to trading of shares
• The exchange supervisory authority and the board of directors must approve the delisting
• Shareholders are not asked, but must receive a compensation offer

Delisting is the withdrawal of a listed company from the trading floor. Legally speaking, in the event of a delisting, companies apply for “the revocation of the admission of their shares to trading on a regulated market”, as stated on the BaFin website.

Approval of the stock exchange supervisory board and the supervisory board required

In order for a company to say goodbye to the stock exchange, the approval of BaFin is required on the one hand, and the company’s supervisory board must also give its consent on the other. In 2015, the reform of the Stock Exchange Act resulted in shareholders being better protected in the event of a withdrawal from the stock exchange. Since then, investors have had to be offered a severance payment when a planned delisting is announced. And that even before the actual application to revoke the listing on the stock exchange is submitted.

Compensation offer necessary

There is a guideline for calculating this severance payment. It should correspond to the average price of the stock over the last six months. Only in a few exceptional cases will the severance payment be determined using the company valuation. Such exceptions include, for example, if the company was guilty of something up to six months before the severance offer was made that depressed the share price, for example by disseminating false information or failing to make ad hoc reports.

In addition, the Stock Exchange Act also stipulates that the compensation must always correspond to a monetary amount in euros; other currencies or other shares may not be offered in the event of a delisting.

Same rules for downlisting

Incidentally, all of these provisions also apply if a company decides not to completely disappear from the stock exchange, but only to switch to the open market on a much smaller regional stock exchange. In this case one speaks of a downlisting. Even if trading in the shares is theoretically still possible for investors, the trading volume is often much lower, and in some cases there is no volume at all, so that it is again very difficult for the shareholder to turn his paper into money.

That is why companies are withdrawing from the stock market

The reasons for delisting can be very different. This often leads to a withdrawal from the stock market when one company is taken over by another. There are many obligations associated with listing on the stock exchange so that there is as much transparency as possible for shareholders. For example, quarterly reports have to be published and an annual general meeting has to be held. However, it may be that the new major shareholder prefers to restructure and rebuild the company away from the public, and the delisting therefore seems cheap.

In addition, a return from the stock exchange can also be associated with cost savings, since, for example, mandatory events for shareholders are omitted. Perhaps a company will also decide to withdraw from the stock market because it no longer relies on financing from the stock market and wants to save the hassle of being listed on the stock exchange.

The stock exchange supervisory authority or the responsible financial services authority can also initiate the delisting of a company. This could happen, for example, in the event of a squeeze-out, when so many shares are in one hand that regular trading can no longer be guaranteed.

Downlisting, on the other hand, can be attractive for companies, as the regulations on small regional exchanges are usually less strict than on the regulated market, so the requirements for trading are less complex and cost-intensive.

Shareholders are not asked

Incidentally, the shareholder is not obliged to accept the severance payment offer. Of course, there is also the option to keep the shares, but it can be difficult to be able to sell the shares at a later point in time, once there is no longer a trading platform for the shares. Of course, one can also speculate that the compensation offer will be increased if there are not enough investors who have returned their shares. However, shareholders should know that their consent is not required for delisting, so there is no way to protect yourself from such delisting.

Finanzen.at editors

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Reference-www.finanzen.at

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