When a company implements share buybacks, it can do several things with these securities.
- First, it may transfer the shares in the stock market at a later time. In the case of a stock reissue, the action is not canceled, but is sold again under the same number of shares, as it was previously.
- He can give or sell shares to their employees, as certain types of wages or the sale of shares.
- Finally, the company may retire the securities.In order to retire stock, the company shall first redeem and then cancel them. The shares may not be reissued on the market and are considered to have no financial value. They are void of ownership in the company.
Shares repurchased from the money saved in the company’s retained earnings. After shares repurchased by the Issuer and the transfer agent, acting on behalf of the Issuer of a share must follow a few securities and exchange Commission rules. The stated purpose of the sec rules to reduce and eliminate fraud in the use of extinguished securities, to reduce the need for physical movement of securities and to improve processing and transmission, as well as the processes involved in operations with securities. There have been cases where cancelled securities disappeared and appeared on the international market as a valid.
Securities which were retired or canceled must be marked with the word “cancelled”. Cancelled securities shall be kept in a special secure storage location. Transfer agents should maintain a retrievable database of all canceled or destroyed inventory. Finally, transfer agents must write and follow a set of procedures on how to deal with cancelled or otherwise of the shares. It is worth noting that the sec did not want to interfere with scripophily
(see the Old securities: lost treasure or Wallpaper), but to Institute regulations to prevent fraud and theft.