Actions of Lucky Coffee (NASDAQ: LK) It collapsed on Friday after the Chinese coffee house company revealed it will be banned from the Nasdaq stock market.
At 11:11 am EDT, Luckin’s shares were down 50%.
Luckin Coffee received its first Nasdaq foreclosure notice on May 15. The exchange warned that it intended to remove Luckin’s shares after the company fabricated transactions and did not disclose material information to investors. Luckin said at the time that she would request a hearing with Nasdaq in an attempt to keep her shares listed.
Luckin received a second notice from Nasdaq on June 17. This time, he warned Luckin that failure to file his annual report would be an additional basis for the exclusion of his actions.
Today, Luckin announced that he withdrew his hearing request with Nasdaq and that he will no longer try to contest the exclusion of his actions. As a result, Luckin’s shares will be suspended from listing on the Nasdaq stock market at the opening of operations on June 29 and will be removed from the list after the appeal period has expired.
Luckin’s shares are likely to continue trading on over-the-counter markets after he pulls out of Nasdaq. But the reason stocks tend to rise in value when first added to major exchanges is that there is more liquidity on the exchanges, making it easier for investors to buy and sell stocks. The reverse is also true: When a stock is removed from the list, fewer stocks are traded, making it difficult for large investors to get in and out of their positions without distorting prices.
Additionally, major exchanges like Nasdaq have listing requirements that set minimum standards for financial reporting and other criteria designed to protect investors. The requirements in the over-the-counter markets are usually much less stringent.
For these reasons, institutional investors and other professional money managers often sell stocks before they are removed from the list. This is likely to happen with Luckin Coffee and it is certainly contributing to the stock’s brutal losses today.