Cancellation is the process of marking securities (stocks and bonds) so they are obviously non-negotiable.

Here's how cancellation worked. (Theoretically, the process remains the same today. In practice, very, very few paper certificates are issued, so the concept of cancellation 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 to the new owner.

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 security transactions was critically important. It was important to cancel certificates to make it impossible for them to be resold. However, cancellation was sometimes overlooked for a myriad of reasons. You can sometimes find old stock certificates obviously glued to 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.

Multiple types of cancellations. It is actually quite common to find more than one type of cancellation on the same certificate. In fact, almost half of all stock certificates show two or more types of cancellations.

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 text of certificates.
Hand punch cancellation
	In this method, holes were punched through certificates. Normally, holes were about an eighth to a quarter-inch (2-4 mm) in diameter. Stock certificates were most often punch cancelled with two or more holes in each officers' signatures. Sometimes, holes were punched through corporate seals and less frequently through vignettes. While punch cancellations were normally simple round holes, as much as 10% of certificates show cancellations in the shapes of letters. It is possible that "letter punch cancels" had significance for companies at the time of cancellation, but, today, their meanings are lost.
Machine punch cancellation
	You can always identify hand cancellations, because holes are spaced randomly around certificates. It is obvious, however, that some companies used a wheel-like device that punched series of holes in rows across certificates. As you can see from this photo, it looks like this bond was sprayed by a machine gun. Hence, collectors often call this style of cancellation "machine gun" or "bullet hole" cancellation. It is very common to see bonds cancelled in this manner with several rows of quarter-inch holes running across the entire width or length of certificates. Curiously, very, very few stock certificates are cancelled in this manner.
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 words or dates. This method of cancellation was exceedingly popular from the 1940s on.
Rubber 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.
"Hammer" or "knife" cancellation
	Certificates were sometimes cancelled by placing in a hand-operated device resembling a stapler. The clerk would hit the top 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. Cancellations like this are often repaired on the back with archival tape.
Cut cancellation
	Similar, but more radical types of cut cancellations are sometimes seen. Occasionally, certificates are sliced with what appears to be a knife or razor. Cuts can be a couple inches long, but often extend four of more inches in an "x" pattern in the centers of certificates. As long as paper is not torn, certificates look completely intact until they are handled. This photo shows a type of mechanical cancellation that is very common on stock certificates of the Chicago Burlington & Quincy Railroad. (It seems sparsely used elsewhere.) Like other types of cut cancellations, photos can almost nevervshow any paper destruction whatsoever. The only way I could show this cancellation was to bend a certificate while pulling it gently apart.
Impressed cancellation
	This type of cancellation disturbs paper fibers by impressing a repetitive design into paper, generally, in the signature area. Its most typical appearance is on stock certificates of the Standard Oil Trust. It seems extremely rare elsewhere. Unless images are very high resolution, they are invisible in typical scans.
Cut-out cancellation
	Occasionally, large amounts of paper were removed, normally by slicing pieces out of the officers' signatures. In a few rare instances, rectangular or triangular cuts removed corners of certificates. Fortunately, this type of cancellation is scarce.
Spindle cancellation
	Stock certificates were sometimes cancelled by impalment on long, thin nails called "spindles." Holes are often only an eight of an inch in diameter, and therefore hard or impossible to see in photos. Damage tends to be very minimal. This photo shows a scarcer spindle design, again impossible to see in ordinary photos. These kinds of spindles had small three-finned "arrowheads" on top. When certificates were impaled, the arrowhead left a triangular cut pattern.
"Wipe" cancellation
	Illinois Central certificates from around 1850 were cancelled with what appears to have been a rag soaked in dilute red ink. I have never seen this type of cancellation used elsewhere.

What if a certificate was glued to a stub, signed on the back or obviously transferred to another person? Was such a certificate cancelled?

Speaking strictly as a matter of hard-nosed theory, if certificates could never have been re-sold, then some features must have rendered them non-negotiable. If those features were signatures on the backs, then again, strictly as a matter of theory, they must have been "cancelled."

When you find writing on the backs of certificates, it usually means certificates had been transferred. Consequently, such certificates were no longer negotiable and were therefore, effectively "cancelled." Occasionally, certificates lack punches, cuts or pen cancellations, but they could never have been negotiated.

Fortunately, those kinds of certificates are rather scarce. I fully recognize that most collectors and dealers disagree with this stance. They contend that if there is no paper damage or other marks, then those certificates should be considered uncancelled.

I will keep with current custom and will continue to list such certificates as "uncancelled." Fortunately, my disagreement creates no concern at this time. I cannot detect any price differences between certificates that are fully uncancelled and those that only show transference.

What about bonds and related certificates that have rubber stamp impressions? Are they cancelled?

It depends. If the impressions clearly state "cancelled," then those certificates are obviously non-negotiable.

However, many bonds show stamped or printed impressions that either extended the terms of bonds, changed terms, or indicated partial payments. Those kinds of impressions do NOT constitute cancellations.

It is quite common for stamp and printed impressions to show partial payments had been made on bonds. Many bonds and certificates of deposit (like the one shown below) show multiple payments. However, since full repayments were never made, the certificates were never actually paid off. In the absence of other evidence, certificates like this remain uncancelled.

Are unmarked certificates considered uncancelled?

Collectors say, "Yes." Companies say, "Let us check."

There are really two types of cancellation: physical cancellation and corporate cancellation. Physical paper cancellation is what collectors look for. In the legal world, corporate records prevail.

As mentioned above, many certificates went through the entire process of transferral, but escaped physical paper cancellation for any number of reasons. Records of cancellations may exist in corporate records. but those records are effectively unavailable to collectors. If certificates are untouched by any physical marks of cancellation, collectors consider them uncancelled. Legally, though, companies may have cancelled them decades ago. (I posted an article about this subject on my blog in February, 2010 and archived it in this web site.)