The business of an exchange entails, among others, offering a platform for trading of securities upon approval for listing by the capital markets regulator. A listed security is a financial instrument that is traded through an exchange, such as the Nairobi Securities Exchange. Upon listing, a company is expected to comply with the listing rules of the exchange on which it is listed, and pays both the exchange’s initial and annual listing fees.
Listing of securities on the exchange provides a transparent measure of the company’s performance, while creating a platform for an efficient process of price discovery and provision of liquidity. Listing is, therefore, beneficial to the issuers of securities, investors and the economy.
The reverse of the above is to delist. Delisting is the process by which a listed security is removed from the exchange on which it trades. Upon delisting, the securities of the delisted company cease to be traded on the exchange. The approval of the Capital Markets Authority is required before a company’s shares are delisted. The decision to delist a security is taken only after wide consultation between the issuer, the regulator and the exchange with support of a comprehensive analysis.
There are two types of delisting: voluntary and regulatory. Voluntary delisting is the withdrawal of an issuer’s securities listed on the exchange with the approval of the holders of the securities, after complying with relevant regulatory requirements. Regulatory delisting refers to the removal by the exchange of an issuer’s securities for non-compliance with the capital markets laws and regulations, and the listing rules of the exchange. The decision to delist in some cases is informed by the company’s desire to streamline its compliance obligations, reduce its legal and compliance costs and re-direct cost savings into the company’s operations.
Delisting of an issuer in any of the above circumstances is only approved if it seeks to protect the interest of the investors. It is worthwhile to note that the issuer of a delisted security can seek to have the security relisted on the exchange upon complying with the prevailing regulatory requirements for listing.
The effect of delisting on shareholders is that their securities can no longer be traded on the exchange. However, shareholders of a delisted company continue to hold the same number and type of shares. Further, the rights of the shareholders remain the same, including participation in any future dividends declared by the company.
Upon delisting, the company still maintains its status as a public limited company, but will not be subject to the regulatory regime of the Exchange and the Capital Markets Authority.
Odundo is the CEO of Nairobi Securities Exchange