To The Moon

Hey, tigers:Congratulations!Today is the last day of our lesson.Let's review the previous lesson first.

Day8 Education：3 kinds of risks in US stock market

Today, I will continue to introduce some specific risks.（All risks are about listed company）

①Unexpected suspension of stocks

②Delisting risks of listed companies

③Bankruptcy risk of listed companies
④The privatization risk of listed companies

Unexpected suspension of stocks

Q: What's the meaning of the suspension problem of stocks?

A: The suspension of trading in stocks is called suspension.

Q: What are the reasons for a stock suspension?

A: There are generally three reasons for a stock suspension.

First: The company announces important news, and by halting or delaying trading, investors can have time to assess the impact of the news.

Second: The stock price is too volatile, causing the stock to be suspended; because the suspension is a common type of suspension in the market, if the stock rises or falls too fast within 5 minutes, it may cause the stock price to automatically suspend trading for 5 minutes. The purpose is to hope that traders can fully consider whether the increase is reasonable.

The third category is that the SEC also has the right to suspend trading in stocks, which can last for 10 days or more, and may take direct action to revoke the registration of securities.

For example, in 2020, due to financial fraud, Lucking Coffee was suspended from April 6 to May 20 at the request of the SEC for one and a half months.

After understanding the stock suspension rules, let's talk about the delisting risks that listed companies may face.

Delisting risks of listed companies

First, delisting refers to the delisting of a listed company's securities from the stock exchange on which it is listed, either voluntarily or as required.

The delisting of listed companies can generally be divided into two types; one is directly delisting from the exchange and no longer listed, in which case investors’ money may be lost. There is also a situation where the company goes to the OTC sector to re-list after delisting or bankruptcy. The OTC sector is also known as the US Pink Sheets.

This sector has very low qualification requirements for companies, and is also the choice of many companies after delisting. If the company chooses to re-list on OTC, the shares in the hands of shareholders are still valuable.

However, the OTC sector does not have requirements for company information disclosure, and the transparency of information is greatly reduced, making it very difficult for shareholders to inquire about company information; at the same time, the liquidity of the pink sheet market will also be greatly reduced compared with the main board. The risk of trading in the market can be very high.

Bankruptcy risk of listed companies

If a company files for bankruptcy protection, it may choose either Chapter 7 or Chapter 11 of the Bankruptcy Code to enforce it.So what's the difference between the two chapters? In fact, which chapter a company chooses can make a huge difference to investors.

If the company invokes Chapter 11 of the bankruptcy code for debt restructuring, the bankrupt company can continue to operate as usual, the company's management continues to be responsible for the company's daily business, and its stocks and bonds can continue to be traded in the market.

However, all major business decisions of the company must be approved by the bankruptcy court, and the company must also file a report with the SEC.

Of course, the company can also choose to invoke Chapter 7 of the bankruptcy code for asset liquidation. In this case, all the company's business must be stopped immediately, and the bankruptcy estate custodian will clean up the company's assets, and the funds will be used to repay the company's debts, including debts to creditors and investors.

At this point, your stock is likely to become a piece of waste paper, because if the bankruptcy court determines that the debtor is insolvent, that is, the debt is greater than the asset, the shareholder investment may not be returned.

The privatization risk of listed companies

The last risk is the privatization of public companies. Some time ago, Elon Musk submitted a non-binding privatization proposal to Twitter to acquire all of Twitter's issued common stock for $54.20 per share in cash.

Based on this calculation, the overall acquisition price of Twitter is as high as $43 billion. Once the transaction is completed, Twitter's common stock will have its registration terminated pursuant to Section 12(G)(4) of the Securities Exchange Act of 1934, as amended, and will be delisted from the New York Stock Exchange.While marveling at Musk's deep pockets, many investors want to understand what going private is, including how it will affect their Twitter stock holdings.

Privatization is a special delisting method, a special type of merger and operation in the capital market. The biggest difference from other mergers and acquisitions is that its goal is to delist the acquired listed company and change from a public company to a private company.Is privatization a good thing or a bad thing for shareholders? Actually, it depends on the price of privatization. If a major shareholder wants to buy your stock, under what circumstances would you sell it to him? Of course the price makes you satisfying!

If the major shareholders take out real money and buy your stock at a higher premium, you will definitely make money; on the contrary, if the price is too low, the company may be sued by the minority shareholders, and the final outcome of privatization will become uncertain.

What if the privatization of a listed company was encountered during the short-selling process?

That just means you're out of luck. If the shorted stocks are announced to be privatized and delisted, the short positions will be silently liquidated. The U.S. bond borrowing policy has no constraints on the lenders. As long as the longs want the stocks to clear their positions, the stocks will be recalled obediently, that is, forced to liquidate.

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