Cancellation is a method of making a securities (stocks and bonds) non-negotiable.

Here's how the process worked. (Theoretically, the process remains the same today. In practice, very, very few paper certificates are issued, so the concept is nearly moot.)

1) The original owner sold his security on the open market.

2) He signed the certificate on the back and gave it to a stock broker, who then paid him for his security.

3) Depending on the time period, the broker gave the certificate to a transfer agent, who was either affiliated with the company or with a trust company in charge of transferring company certificates.

4) The company or transfer agent recorded the transaction in corporate records, cancelled the old certificate in some manner, and issued a new certificate.

5) Often, especially with smaller companies, certificates were matched up with the original book of transactions and glued with hide glue against the original stubs.

Recording was crucial. As you can imagine, the process of recording the transaction was critically important. Cancellation was definitely important, but was sometimes overlooked. That is why you can sometimes find old stock certificates glued against their original stubs, but yet lack any obvious cancellation.

The purpose of cancellation was to render certificates non-negotiable just in case certificates were ever stolen. Obviously, a company could ill-afford to have duplicate stock certificates or bonds floating around in the marketplace.

Methods of cancellation vary widely through time and between companies. Cancellation methods might have changed many times through the course of issuing and redeeming thousands of certificates.

Pen cancellation
	Clerks and secretaries cancelled almost all of the oldest certificates with ink pens. Black ink was the most common, although red was used occasionally. Generally, certificates were cancelled by marking though officers' names. Occasionally, certificates were cancelled with large 'X's. Less frequently, the word "cancelled" was written, normally vertically across the center of certificates.
Punch (or hole) cancellation
	In this method, holes were punched through certificates. Normally, holes were about a quarter-inch in diameter. Stock certificates were most often punch cancelled with two holes in each officers' signatures. Sometimes, holes were punched through corporate seals and less frequently through vignettes. In bonds, it is very common to see several rows of quarter-inch holes running across the entire width or length of certificates. In extreme cases, this is variably called "shotgun," "machine gun," or "bullet hole" cancellation. While punch cancellations were normally simple round holes, a small percentage of certificates show cancellations in the shapes of letters. It is possible that the "letter punch cancels" had significance for companies at the time of cancellation, but, today, their meanings generally seem lost.
Hole cancellation
	Occasionally, very large punch cancellations removed large pieces of paper. Sometimes, they were three-quarter-inch holes or larger diamond- or rectangular-shaped holes. Rectangular punch out cancellation was fairly popular on AT&SF and Northern Pacific certificates around the turn of the 20th century.
Pinhole cancellation
	This form of punch cancellation is made up with a series of tiny holes, usually spelling out a word or date. This method of cancellation was exceeding popular from the 1940s on.
Stamp cancellation
	Cancellation by rubber stamps was very common from the 1880s to the 1920s. Usually, rubber stamps spelled the words "cancelled" or "void." Red and purple inks were common, with blue ink used less frequently. Stamp cancellations were very commonly combined with pen or punch cancellations.
Cut, "hammer", or "knife" cancellation
	Certificates were sometimes cancelled by placing in a hand-operated device resembling a stapler. The clerk would hit the hammer, and razor blades would cut the paper in either 'X' or circular patterns. This kind of cancellation is almost impossible to detect in photographs because the paper remains visually intact. Cut cancellations are often repaired on the back with archival tape which preserves a visually appealing certificate.
Cut-out cancellation
	Occasionally, very large amounts of paper were removed, normally by slicing triangular pieces out of the officers' signatures. In a few rare instances, rectangular or triangular cuts removed corners of certificates.
"Wipe" cancellation
	Illinois Central certificates from around 1850 were cancelled with what appears to have been a rag soaked in dilute red ink.