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.

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), 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) and Deutsche Telekom (DTEGY).

In January of 2014, 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.

Updated (2/1/21):

From the article What the Delisting of Chinese ADRs Means for Investors at WSJ:

What happens to the value of delisted ADRs? Are they worthless?

The receipts won’t be worthless—effectively they still represent an economic interest in the company. Holders could still collect dividends, for example. But only non-American entities will want to buy the ADRs, which is likely to reduce their value, and they could become difficult to trade and to value.

What can investors do when a stock is going to be delisted?

Investors in the Chinese telecom carriers can sell their ADRs on NYSE before they are delisted or convert them to the Hong Kong-listed ordinary shares. But the U.S. ban also prohibits American investors from buying securities that trade on any exchange anywhere, or even just over-the-counter, so switching into Hong Kong shares might only buy a few months’ respite.

What happens if investors don’t trade in their ADRs?

There is no requirement to sell until November, so investors could hold on until then. In addition, Nicholas Turner, a lawyer at Steptoe & Johnson LLP in Hong Kong, said the Treasury Department was unlikely to focus on individual investors who inadvertently bought into targeted companies. “Assuming that most financial institutions will follow the rules, most U.S. retail investors will simply lose access to opportunities to purchase the securities,” he said.

Institutions that buy blacklisted stocks after Jan. 11 could be penalized. Mr. Turner said the International Emergency Economic Powers Act allows the Treasury to levy fines of more than $307,000 for each violation or twice the value of a transaction, though it often cuts penalties if companies cooperate and make efforts to fix compliance failings.

Related Links:

• ADR Fees: What is it and Why it is Important be Aware of it, TFS
• ADR Fees: 10 Important Things To Know, TFS
• ADR Fees: 5 Additional Important Facts To Be Aware Of, TFS
• What are the American Depositary Receipt (ADR) fees?, DriveWealth

Related Posts:

• FAQs for Companies and Investors (OTC Markets)

Disclosure: No Positions