A:

When a company performs a share buyback, there are a few things that the company can do with the securities they buy back. The company can reissue the stock on the market at a later time. In the case of a stock reissue, the stock is not canceled, but is sold again under the same stock number as it was previously sold. The company may give or sell the stock to its employees as some type of employee compensation or stock sale. Finally, the company can retire the securities.

In order to retire stock, the company must first buy back the shares and then cancel them. shares can not be reissued on the market, and are considered to have no financial value. They are null and void of ownership in the company. Retired stock is repurchased from the money saved in the company's retained earnings. After the stock is repurchased, the issuer or transfer agent acting on behalf of the share issuer must follow a number of Securities and Exchange Commission rules regarding stock. The stated goals of the SEC's rules for the handling of canceled stock are to reduce and eliminate fraud resulting from the use of canceled securities, reduce the need for physical movement of securities, and to improve the processing and transferring, as well as those processes involved in securities transactions. There have been occasions in which canceled securities have gone missing and appeared on the international market as current and valid securities.

Retired stock is canceled according to the following rules. Securities that have been retired, or canceled, must be clearly marked with the word "canceled". Canceled securities must be kept in a dedicated, secure storage area. Transfer agents must keep a retrievable database of all canceled or destroyed stock. Finally, transfer agents must write and follow a set of procedures on how to deal with canceled or otherwise terminated stock. It is worth noting that the SEC does not mean to interfere with scripophily, but has to institute regulations in order to prevent fraud and theft of destroyed or canceled securities.

For more information, see Old Stock Certificates: Lost Treasure or Wallpaper.

RELATED FAQS
  1. What are the disclosure requirements for a private placement?

    The U.S. Securities and Exchange Commission (SEC) has set forth disclosure requirements for private placements, including ... Read Full Answer >>
  2. What role does the Inspector General play with the Securities and Exchange Commission?

    The inspector general of the U.S. Securities and Exchange Commission (SEC) oversees, audits and conducts investigations of ... Read Full Answer >>
  3. How long does it take to execute an M&A deal?

    Even the simplest merger and acquisition (M&A) deals are challenging. It takes a lot for two previously independent enterprises ... Read Full Answer >>
  4. How is trading volume regulated by the Securities and Exchange Commission (SEC)?

    The U.S. Securities and Exchange Commission (SEC) has trading volume as a requirement for selling securities that are otherwise ... Read Full Answer >>
  5. What do I do if I think an accountant is in violation of the Generally Accepted Accounting ...

    The Financial Accounting Standards Board (FASB) promulgates generally accepted accounting principles (GAAP) in the United ... Read Full Answer >>
  6. What action is the SEC likely to take on 12b-1 fees?

    The Securities and Exchange Commission (SEC) may take action to impose greater regulation on how 12b-1 fees are used, or ... Read Full Answer >>
Related Articles
  1. Investing News

    Mexican Energy, Telecom Reforms Please Foreign Investors

    Two years into his first term, Mexican President Enrique Peña Nieto is following through on radical campaign promises he made to Mexican citizens for sweeping multi-industry reform.
  2. Investing

    Top Cities Where Airbnb Is Legal Or Illegal

    Thinking of subletting your apartment on Airbnb? Make sure that you meet your city's regulations first.
  3. Term

    Understanding the Maintenance Margin

    A maintenance margin is the minimum amount of equity that must be kept in a margin account.
  4. Credit & Loans

    Co-signing a Loan? Make Sure You Know The Risks

    Contractually, co-signers are just as responsible for the loan as the person actually borrowing the money. Be careful not to put yourself at risk.
  5. Investing

    Trends In Copyright Litigation

    The Internet has resulted in an explosion in content. An increasing number of copyright trolls are monetizing such content through litigious practices.
  6. Taxes

    What's IRS Form 2848 Used For?

    It's a power of attorney tax form and here's what it can, and cannot, do.
  7. Mutual Funds & ETFs

    What You Need To Know About Bond ETF Yields

    When it comes to fixed income investing, yield is an important component of a bond investment’s total return to accurately assess if it's the right move.
  8. Investing

    Is Airbnb Safe? What You Need To Know

    Thinking of booking a room or listing your home on Airbnb? Get up to speed on safety features for both guests and hosts.
  9. Professionals

    SEC Audit? No Problem (If You're Prepared)

    Audits are unwanted and unpleasant, but by getting your proverbial ducks in a row ahead of time you can ease and simplify the process.
  10. Personal Finance

    Top 5 Ways to Retain Your Best Employees

    You need to think beyond salary to make the most talented people want to stay on for the long term.
RELATED TERMS
  1. Emergency Banking Act Of 1933

    A bill passed during the administration of former U.S. President ...
  2. Slander

    Slander is the act of harming one person’s reputation by telling ...
  3. Libel

    Libel is publishing a statement about someone in written form ...
  4. Defamation

    Defamation is any statement (written or spoken) that damages ...
  5. Fair Housing Act

    This law (Title VIII of the Civil Rights Act of 1968) forbids ...
  6. PCI Compliance

    Technical and operational standards that businesses are required ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!