What Is a Retirement of Securities?

Malcolm Tatum

A retirement of securities is a financial term that can refer to a couple of different events that occur in the life of various types of securities, such as stocks and bonds. One approach has to do with the repurchase of the securities by the issuer, who then chooses to cancel those acquired securities and not offer them for future sale to other investors. A slightly different understanding of a retirement of securities focuses on taking assets off the market because the assets have reached their maturity or settlement dates.

Man climbing a rope
Man climbing a rope

One approach to a retirement of securities has to do with a buyback effort that is mounted by the original issuer of the securities. For example, if the issuer of a bond wants to call the bond early, investors will be notified and arrangements made to settle with each of those investors, based on the terms related to the original bond issue. After the settlement process is complete, the bond issue is considered retired and will not be offered for resale to more investors. The settlement or retirement of one bond issue does not mean that the issuer cannot create a brand-new bond and begin to offer it through the appropriate markets.

The same general approach to the retirement of securities can also apply to shares of stock. In this scenario, the issuing company will go about the process of buying back shares of a certain class, within the intention of cancelling those shares. This may be due to a strategy that requires changing the number of preferred and common shares of stock that the company wishes to have in circulation.

An alternative example of a retirement of securities has nothing to do with calling a bond issue early or buying back shares of stock as a means of restructuring the stock options offered by a particular company. The retirement may take place simply because the asset in question reaches full maturity, prompting the issuer to settle with investors according to the original terms, and considering the asset to be retired. This is true for a bond issue that is not called early, but continues to remain in place all the way through to its maturity or expiration date, and is settled according to the original terms associated with the bond. With this type of retirement, the investor receives the full benefit in terms of any interest accrued over the life of the bond, or receiving the face value of the bond after paying in a discounted price when the bond was purchased.

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