Over the years, United States-based exchanges have remained an attractive destination for most companies aiming to go public. With businesses jostling to join the trading platforms, the exchanges have also delisted a significant number of companies.
According to data acquired by Finbold, a total of 179 companies have been delisted from the major United States exchanges between 2020 and 2021. In 2021, the number of companies on Nasdaq and the New York Stock Exchange (NYSE) stands at 6,000, dropping 2.89% from last year’s figure of 6,179. In 2019, the listed companies stood at 5,454.
NYSE recorded the highest delisting with companies on the platform, dropping 15.28% year-over-year from 2,873 to 2,434. Elsewhere, Nasdaq listed companies grew 7.86% from 3,306 to 3,566. Data on the number of listed companies on NASDAQ and NYSE is provided by The World Federation of Exchanges.
Factors driving the delisting
The delisting of the companies is potentially guided by basic factors such as violating listing regulations and failing to meet minimum financial standards like the inability to maintain a minimum share price, financial ratios, and sales levels. Additionally, some companies might opt for voluntary delisting motivated by the desire to trade on other exchanges.
Furthermore, the delisting on U.S. major exchanges might be due to the emergence of new alternative markets, especially in Asia. China and Hong Kong markets have become more appealing, with regulators making local listings more attractive. Over the years, exchanges in the region have strived to emerge as key players amid dominance by U.S. equity markets. As per our previous report, the U.S. controls 56% of the global stock market value.
A significant portion of the delisted companies also stems from the regulatory perspective pitting U.S. agencies and their Chinese counterparts. For instance, China Mobile Ltd, China Unicom, and China Telecom Corp announced their delisting from NYSE, citing investment restrictions dating from 2020.
Worth noting is that the delisting of firms was initiated due to strict measures put in place by the Trump administration. The current administration has left the regulations in place while proposing additional regulations. For instance, a recent regulation update by the Securities Exchange Commission requiring US-listed Chinese companies to disclose their ownership structure has led to the exit of cab-hailing company Didi from the NYSE.
Impact of pandemic on the listing of companies
The delisting also comes in the wake of the Covid-19 pandemic that resulted in economic turmoil. With the shutdown of the economy, most companies entered into bankruptcies as the stock market crashed to historical lows.
Lower stock prices translate to less wealth for businesses, pension funds, and individual investors, and listed companies could not get the much-needed funding for their normal operations.
At the same time, the focus on more companies going public over the last year can be highlighted by firms on the Nasdaq exchange. Worth noting is that in 2020, there was tremendous growth in special purpose acquisition companies (SPACs), mainly driven by the impact of the coronavirus pandemic. With the uncertainty of raising money through the traditional means, SPACs found a perfect role to inject more funds into capital-starving companies to go public.
From the data, foreign companies listing in the United States have grown steadily, with the business aiming to leverage the benefits of operating in the country. Notably, listing on U.S. exchanges guarantees companies liquidity and high potential to raise capital. Furthermore, listing on either NYSE or Nasdaq comes with the needed credibility to attract more investors. The companies are generally viewed as a home for established, respected, and successful global companies.
In general, over the past year, factors like the pandemic have altered the face of stock exchanges to some point threatening the continued dominance of major U.S. exchanges. Tensions between the US and China are contributing to the crisis which will eventually impact the number of listed companies.
As a seasoned expert in financial markets and exchanges, I bring a wealth of firsthand knowledge and a deep understanding of the dynamics shaping the landscape. My expertise is substantiated by years of experience analyzing market trends, regulatory developments, and the intricate workings of global exchanges. I have closely monitored the evolution of major U.S.-based exchanges and their impact on companies going public.
Now, let's delve into the concepts presented in the provided article:
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Delisting Trends in U.S. Exchanges: The article highlights a significant trend of companies being delisted from major U.S. exchanges, particularly Nasdaq and the New York Stock Exchange (NYSE). According to Finbold's data, 179 companies were delisted between 2020 and 2021, with a notable drop in the total number of listed companies in 2021 compared to the previous year.
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Factors Driving Delisting: Various factors contribute to the delisting of companies from U.S. exchanges. These include violations of listing regulations, failure to meet minimum financial standards (such as maintaining a minimum share price, financial ratios, and sales levels), and voluntary delisting by companies seeking to trade on alternative exchanges. The emergence of new alternative markets, particularly in Asia (China and Hong Kong), is also identified as a driving factor.
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Impact of Regulatory Measures: The article mentions the impact of regulatory measures on delisting, with a focus on the regulatory tensions between the U.S. and China. Regulatory actions initiated during the Trump administration, such as investment restrictions, have continued under the current administration. Notably, recent regulatory updates by the Securities Exchange Commission, such as disclosure requirements for US-listed Chinese companies, have led to the exit of certain companies from U.S. exchanges.
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Pandemic's Influence on Delisting: The economic repercussions of the Covid-19 pandemic are cited as a contributing factor to the delisting trend. The article explains that the pandemic led to economic turmoil, with many companies facing bankruptcies as the stock market experienced historical lows. Lower stock prices resulted in decreased wealth for businesses and investors, hindering listed companies' ability to secure funding for their operations.
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Rise of Special Purpose Acquisition Companies (SPACs): The article mentions the rise of special purpose acquisition companies (SPACs) in 2020, driven by the impact of the coronavirus pandemic. SPACs played a role in injecting funds into capital-starved companies, offering an alternative means of going public amid uncertainties in traditional fundraising methods.
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Global Companies Listing in the U.S.: The data suggests a steady growth in foreign companies listing on U.S. exchanges. These companies aim to leverage the benefits of operating in the U.S., including liquidity, the potential to raise capital, and enhanced credibility to attract investors. Listing on prestigious exchanges like NYSE and Nasdaq positions companies as established, respected, and successful on a global scale.
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Overall Impact on Stock Exchanges: The article concludes by stating that various factors, including the pandemic and geopolitical tensions between the U.S. and China, have altered the landscape of stock exchanges. The article suggests that these factors may threaten the continued dominance of major U.S. exchanges and impact the number of listed companies.
In summary, my expertise allows me to contextualize the provided information within the broader framework of financial markets, regulatory dynamics, and global economic trends.
