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 do I do if I think an accountant is in violation of the Generally Accepted Accounting ...

    Learn where to report financial accounting fraud if you suspect an accountant is in violation of the generally accepted accounting ...
  2. What action is the SEC likely to take on 12b-1 fees?

    Read about what actions the SEC may take with regard to 12b-1 fees, and for what purposes these types of fees can be used ...
  3. How can I access a company's earnings report?

    Find out how to access the quarterly and annual earnings reports for publicly traded companies, and even how to listen in ...
  4. What are some good online resources for me to learn about Generally Accepted Accounting ...

    Learn about three authoritative online resources for generally accepted accounting principles, or GAAP: the websites for ...
RELATED TERMS
  1. Libel

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

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

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

    Technical and operational standards that businesses are required ...
  5. Mandatory Binding Arbitration

    A contract provision that requires the parties to resolve contract ...
  6. Mail Or Telephone Order Merchandise Rule

    A regulation that controls businesses that sell products over ...

You May Also Like

Related Articles
  1. Professionals

    SEC to Advisors: Implement Cybersecurity ...

  2. Fundamental Analysis

    How Patent Trolls Hurt Competition

  3. Investing Basics

    Who Are Patent Trolls & How Do They ...

  4. Investing

    Should Amtrak Be Privatized?

  5. Fundamental Analysis

    The Business Model Of Private Prisons

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!