For a troubled small company, it can nail the coffin shut. It's called a delisting--meaning the company's stock is removed from the market it trades on--and it's a growing risk for an increasing number of small companies.
Tougher listing rules adopted this year by the Nasdaq Stock Market, the home of most smaller publicly traded companies, and the broad market's plunge since spring have led to a record number of Nasdaq delistings.
Pushed off the major Nasdaq market, a small stock can quickly become almost invisible to most investors. That is why resentment among delisted firms--many of them young California companies--runs high, particularly over Nasdaq's strict new listing standards.
Nasdaq officials, however, say the new requirements are making the market safer for investors by removing the highest-risk shares from the field.
This year's Nasdaq delisting tally has already passed the previous record of 719 set in 1988, according to preliminary data from the National Assn. of Securities Dealers, which operates the electronic Nasdaq market. Last year's tally was the second-highest since 1988, with 717 delistings.
Through September, 638 companies were delisted from Nasdaq, according to NASD data. And during October, 97 more companies were delisted, according to Times research and data from the NASD's Web site (http://www.nasdaqnews.com), bringing the estimated year-to-date total to 735.
"The listing standards in place today go right at the heart of investor protection," said Patrick Campbell, Nasdaq's chief operating officer. "It was very important to us to increase the standards to maximize the integrity of the Nasdaq market, given its place in the world's financial system. Nasdaq continues to attract and retain very high-quality companies."
Under the new requirements, a small company can be delisted if its stock drops below $1 for more than 30 days, it has a market capitalization of less than $5 million or it has capital reserves of less than $4 million. Many firms that are delisted fall into at least two of these categories.
California firms delisted in recent months include Vyrex Corp., a La Jolla-based biopharmaceutical firm; Showscan Entertainment Inc., a Culver City entertainment media firm; Hypermedia Communications Inc., a San Mateo-based publisher of a news magazine dedicated to multimedia technology; Thinking Tools Inc. of San Jose, a year-2000 software specialist; and Marina del Rey-based software firm Quarterdeck Corp.
