What to do when an ADR is delisted from NYSE or NASDAQ

One of the issues that investors in NYSE/NASDAQ-listed foreign stocks face is what to do when a company decides to delist from any of these two exchanges. In this post let us discuss some of the options available to deal with this issue.

Why do foreign companies delist from exchanges?

There are many reasons a company can decide to delist. Three of the main reasons are:

1. Lack of trading volumes

US investors may not show enough interest in a foreign company listed on exchanges here. As a result the daily trading volume may be thin. It is not unusual to have trading volumes in the low thousands or even hundreds of shares per day for such stocks. So a company may decide to discontinue listing.

2.High listing fees charged by exchanges 

The listing fees charged by NYSE or NASDAQ can run into thousands of dollars. Some companies may find that expense unjustified especially if there is lack of trading volumes. For example, $20,0000 listing fees per year to NYSE may not be worth it if there is hardly any investor interest in the stock.

3.High costs involved in SEC reporting

Overseas companies listed on the US exchanges have to follow the Security and Exchange Commission(SEC)’s regulations and file reports to them periodically. This involves additional work on their accounting and investor relations departments. Some companies may not want to spend on the added resources and deal with the reporting burden.

 What are the options available when a foreign stock delists from an exchange?

A couple of options to deal with this situation are discussed below.

1. Company delists its stock from the NYSE or NASDAQ and moves it to the OTC market:
Sometimes a foreign company may decide to delist from the organized exchanges and move to the OTC markets for any of the reasons mentioned above or some other reason. The company may continue to sponsor the ADR program. So trading will continue but just the venue will be different.

In such cases, an investor has the option to hold the stock even if it trades on the OTC. Just the ticker will change to a five letter ticker.

Many large-cap multinationals trade on the OTC markets. Some of them are: Nestle (NSRGY), Roche Holding(RHHBY), Imperial Tobacco Group(ITYBY), La Farge(LFRGY), DBS Group Holdings (DBSDY),etc. Some of the German companies that moved from exchanges to OTC in recent years include Bayer (BAYRY), BASF Group (BASFY),Daimler AG(DDAIY) and Deutsche Telekom (DTEGY).

In January of this year Siemens announced plans to delist from NYSE and move to the OTC. Currently it trades on the OTC market with the ticker SIEGY. While listed on the NYSE it traded with the ticker SI.

2. Company terminates its ADR program:

Sometimes a company may just terminate its ADR program for some reason. In such situations the ADR depository will notify ADR holders of the choices to redeem their ADRs. A company may simply terminate the program and payout a specific dollar amount for stockholders to surrender their stocks. Or a company offer the option to convert the ADR into the common stock trading on its domestic exchange in their home country. Very few companies offer this option due to the logistics, tax and other factors involved.

Some firms may decide to terminate its sponsored ADR program but let it trade in the unsponsored category. This decision is made by the ADR depository if there is trading interest and not by the company. Depositories can create unsponsored ADR programs without a company’s consent.

An example of ADR termination notice can be found here for Allied Irish banks plc.

Updates:

  • Bank of Ireland (IRE) ADR is already delisted from the NYSE. The bank’s ADR stopped trading on the NYSE on Feb 12, 2015. More details can be found in this article. However until April 22, the ADR will trade on the OTC market under the ticker IREBY.It will be delisted from the OTC market also effective April 22, 2015. If you hold the ADR, go here for your options.

Since the beginning of the year, some ADRs mainly those trading on the  OTC markets have been terminated.

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Disclosure: No Positions

53 Comments

  1. If the OTC company is bought out then the depository will cancel the ADR stock by asking holders to surrender their ADRs and then paying out the proceeds less any transaction costs and fees. Very rarely would they allow you to convert to the ordinary stock on the domestic exchange. So you may want to find out the depository of the OTC stocks and contact them for help.

    Thanks
    -David

  2. David

    Hi, i know it’s been over 2 years since you replied to this thread but i just have a question.
    As of today, Latam airline is delisted from NYSE. I was wondering what were my options
    From what i know, 1) wait til latam goes to OTC and see what happens 2) my stocks are basically paper, it doesn’t worth anything and i should just get rid of it from my portfolio for tax reason. Is there anything i can salvage or is it gone?

    Thanks

  3. John
    Sorry for the delay.

    Yes you can wait till it goes to OTC and see what happens there. Since it was already delisted on June 10th currently you have no option but to wait until it trades on the OTC. Then liquidate it at whatever the price you can get and take the tax loss.

    Since the airline industry is going to be challenging until this pandemic is over its best to move on. Moreover in Latam’s case they have filed for bankruptcy. So equity holders could easily be wiped out in any reorg.

    Currently there is nothing you can salvage since it does not trade anywhere.

    Hope this answers your questions. Thanks.

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