Quoted Firms, Listing Requirements and the Issue of Delisting


Friday, March 06, 2015 5.48PM/TheAnalyst

Delisting of quoted companies represents the last resort regulators usually employ to maintain market standard as it is usually not n the best interest of poor investors who had parted with their hard earned money to invest in such firms.

As processes currently have it, delisting can be either voluntary or regulatory. Regulatory delisting has been the most common as the regulator do have to act after several warnings and notices to the erring firm.

Thus, delisting is exerted as the ultimate sanction on a quoted company for persistent non-compliance with post-listing rules or requirements.

Acts that can bring about sanctions include default in filing of financial statements as at when due, breaching of listing rules like publications without NSE’s prior written approval, non-disclosure of material information, and non-compliance with NSE Directive such as directive to shore up free float deficiency.

So why do companies delist?
The Exchange will delist securities where the Issuer has not complied with the Listings Rules of The Exchange, or for breach of the terms and conditions of the General Undertaking executed by the Issuer when its securities were listed by The Exchange; or further to the Issuer’s application for voluntary delisting of its securities.

Other reasons include where, the National Council of The Exchange (“Council”) considers that there is insufficient public interest in the Issuer, or the securities of the Issuer in the hands of the public are insufficient to make a market in the securities.

Voluntary delisting is most times initiated when a quoted firm wants to increase privacy of its affairs by reducing its exposure to regulatory scrutiny and also removing the cost of complying with terms and conditions of listing on the exchange.

However, after delisting a few companies can go to a lower market like the NASD OTC market to list as witnessed recently in the case Cappa and D’Alberto Plc which was delisted in January, 2015

Even though the NSE does not encourage listed firms to delist, it does not hesitate in sanctioning firms with tract record of consistent breaching of listing rules.

The table below highlights the number of listed firms that have delisted from the Exchange between 2002 and 2009. Of the 33 companies that were delisted within the period, only 3 companies delisted voluntarily. The remaining 30 were for regulatory reasons.

Also, between year 2010 till date, 37 listed firms across various sectors have delisted from the exchange mainly for regulatory reasons. Regulatory delisting was the dominant reason why most firms delisted within the period.

This validates the reason why NSE needs to engage quoted companies to understand reasons why they often fail to comply with post listing regulations in order to understand possible ways of curbing non cpmpliance.

Quoted firms, who are struggling with the listing requirements of the main board, may also consider listing on the Alternative Securities market (ASEM) if it would be more convenient to meet the requirements of ASEM as against the main board in order to avoid regulatory delisting.

Meanwhile, the NSE is intensifying efforts to get a lot of companies listed on the exchange, especially companies in the telecoms and power sectors of the economy in order to increase the depth of the market.

While the market continues to wait for this to materialize, existing quoted firms should step up efforts to comply with post listing requirements so as to minimize the rate of delisting as witnessed in the past.

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