The status of commercial companies increases if their securities are admitted to trading on stock exchanges. However, there are ups and downs in the business world. Sometimes trading floors are forced to carry out a procedure known as stock delisting. This is usually the result of a serious deterioration in the economic performance of the enterprise.
Terminology
Listing is a multistage procedure for admitting securities of companies to circulation in the stock market. This term comes from the English word, which translates as "list". A mandatory part of the listing process is a thorough and comprehensive review of the financial condition of a company that claims to participate in trading on the financial market as an issuer (a company that places its shares on the stock exchange).
Stock exchanges compose so-called quotation lists. They include securities of companies that meet the requirements established by the exchange for issuers. It is common practice to divide stocks into quotation lists into categories. Securities are grouped depending on the reliability and financial performance of the companies that placed them on the stock exchange. As an additional criterion, the liquidity of shares is taken into account.
Listing Purpose
Companies strive to become part of the processes taking place on the stock exchange, in order to attract capital and improve their status. Issuers that have undergone rigorous screening prior to being listed will inspire the confidence of potential investors and business partners. In addition, companies whose shares are traded on an organized stock market are constantly monitored closely by the management of the exchange. Any significant changes in their financial condition immediately become known to the general public. If the affairs of a company decline, the exchange may initiate delisting. This means the exclusion of the issuer from the quotation lists and the removal of its shares from trading.
Listing Procedure
At the preliminary stage, companies wishing to place their equity securities submit an application to the management of the exchange. A contract is concluded between the public joint-stock company and the representatives of the stock market.
The company provides admission of securities exchange specialists to its constituent documents and accounting reports. Experts study the profitability of the issuer's business, the history of changes in the authorized capital and the ability of the joint-stock company to fulfill current financial obligations. The results of the work of specialists are carefully considered by the special quotation commission of the exchange, which makes the final decision. Companies that meet only part of the requirements are included in a separate list of candidates awaiting listing in the foreseeable future.
Control
The strict procedure for admitting issuers to the securities market is fully justified. Multistage checks serve as a kind of filter, preventing dubious and unreliable joint-stock companies from entering the national stock market. In accordance with the law, securities of companies that have not passed the listing procedure can be traded only in the OTC market. Non-systemic transactions with shares are not regulated by the state and do not have any security guarantees.
Issuers included in quotation lists are required to inform bidders in detail about all aspects of their business. The exchange receives a fee from joint-stock companies for the listing procedure and subsequent monitoring of financial indicators.
Company Requirements
There are hundreds of organized stock exchanges in the world. Some of them have international status, others work with securities at the national level. Rules for inclusion in quotation lists vary on different exchanges. Trading platforms that care about their reputation put forward extremely high requirements for capitalization and the level of corporate governance of companies.
An additional condition often becomes the mandatory presence of a certain number of market makers who are ready on an ongoing basis to maintain the liquidity of securities. Some emerging exchanges show a liberal attitude towards applicants for inclusion in quotation lists. They admit to trading shares of companies that do not have the opportunity to be listed on leading stock exchanges.
