What Are Retired Securities?
Retired securities have been repurchased by the issuer out of the company's retained earnings and canceled, according to Securities and Exchange Commission (SEC) regulations. They have no market value and no longer represent a share of ownership in the issuing corporation.
- Retired securities have been bought back by the company, thus reducing the number of shares outstanding.
- Stock certificates of retired securities may still have value to collectors, although the retired securities themselves have no value.
Understanding Retired Securities
Though retired securities have no market value, they often have value to collectors of old stock certificates. Some canceled securities have appeared fraudulently on the international market, leading the SEC to make changes to regulations governing how transfer agents handle canceled stock certificates.
Rules adopted in in 2004 amending the Securities Exchange Act of 1934 “require every transfer agent to establish and implement written procedures for the cancellation, storage, transportation, destruction, or other disposition of securities certificates. This rule will require transfer agents to: mark each cancelled securities certificate with the word ‘cancelled’; maintain a secure storage area for cancelled certificates; maintain a retrievable database of all of its cancelled, destroyed, or otherwise disposed of certificates; and have specific procedures for the destruction of cancelled certificates. Additionally, the Commission is amending its lost and stolen securities rule and its transfer agent safekeeping rule to make it clear that these rules apply to unissued and cancelled certificates.”
How to Check on Retired Stock Certificates
What if you find old share certificates left by your grandfather? Perhaps a few shares of Berkshire Hathaway (BRK.A), worth more than $300,000 per share as of Jan. 2021. That's rarely the case, but there are ways to find out whether they are worth something.
Look for the company name and location of incorporation, a CUSIP number, and the name of the person with whom the security is registered. All of these items are important and can likely be found on the certificate's face.
Most large discount brokerages are able to help clients track down securities that have been defunct for over 10 years. With the CUSIP number, the brokerage can uncover all splits, reorganizations, and name changes that have occurred throughout the company's history. It can also tell you whether the company is still trading or out of business.
Be sure to see if the shares have the word "canceled" imprinted on them, often with holes punched through the certificate. If so, the share is worthless, but it might be worth something to a collector. For a fee, stock search companies will do all of the investigation work for you and, if the certificate ends up having no trading value, they may offer to purchase it for a collector's value. One company that offers this service is RM Smythe.
Real-World Example of Retired Securities
Many securities are routinely bought by their issuing company. This reduces the number of shares outstanding, and assuming the company doesn't overpay for their shares, this can help bolster shareholder returns.
Apple Inc. (AAPL) is a company that aggressively bought back its own shares from 2012 to 2020. They may continue to do so in the future. Every quarter over that time frame, AAPL bought roughly $10 billion worth of its own stock. Between 2012 and 2019, the company repurchased $385 billion in shares.
These shares are repurchased and retired, resulting in fewer shares outstanding.