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 (e.g., NASD, OTC)

The Reorg Department

Corporate Actions often take the form of Reorganizations – or changes to the corporate structure – that typically cause changes to the corporation’s outstanding investment securities.

For example, assume that XYZ Co. changes it’s corporate name to ABC Inc. At the time that the name change becomes effective, all outstanding investment securities issued by and in the name of XYZ Co. must be surrendered and new securities must be issued in the name of the new corporate entity – ABC Inc.

Reorganizations typically fall into one of two categories:

Mandatory Reorganizations

A ‘Mandatory Reorganization’ is the result of a Corporate Action or event that impacts and requires change to an entire securities issue.  All holders of the affected security issue will require changes to their securities holdings.  It is possible, depending on the nature of the corporate change, that the reorganization might require changes to the entire universe of securities issued by the affected corporation or corporations. 

To process a Mandatory Corporate Action the Reorg Department must review the firm’s Stock Record and identify all holders of the security or securities subject to the Mandatory Reorganization.  Based on the terms of the event the Reorg Department will surrender the old securities invalidated by the Corporate Action to – and receive any new securities issued from – the designated agent specified in the terms of the corporate action.

Additionally, the Reorg Department will make any and all journal entries required to remove any old securities positions from and add new securities to the firm’s books and records.  Cash adjusting entries might also be required to charge (debit) or pay (credit) accounts in pursuant to the Corporate Action.

Adjusting entries are processed to all affected client and firm accounts.  Firm accounts include streetside locations and depository accounts, Fails to Deliver and Fails to Receive and Securities Lending accounts. 

Common Mandatory Corporate Actions processed by the brokerage firm’s Reorg Department include:

Name Changes

The XYZ Co. Name Change illustrated previously is one example of a Mandatory Corporate Action that would be processed by the brokerage firm’s Reorg Department.    In the example, XYZ Co. is changing its corporate name to ABC Inc.

In the XYZ Name Change the investors do not choose or elect whether or not to surrender the old name securities and receive the securities for the new entity name.  Rather, the Name Change is Mandatory, and as such, is applied to all of the corporation’s outstanding securities unilaterally. 

To process the Name Change the Reorg Department must identify all accounts on the firm’s Stock Record that are holders of the old security – in this case XYZ Co.  On the ‘Effective Date’ of the Name Change the Reorg Department will present the XYZ Securities to the designated agent – the agent is typically identified in the terms of the deal.  Similarly, the Reorg Department will receive from the agent the new – ABC Inc. – securities.

To complete the processing of the Name Change the Reorg Department must process journal entries to the firm’s books and records to remove the old XYZ securities from the impacted client accounts and add the new ABC positions.


A Merger is a Corporate Action in which two or more separate legal entities combine to form one new legal entity.  For example, Firm A and Firm B agree to merge.  The result of the merger will be the new, combined entity – Firm AB.

To process the merger the Reorg Department must identify all holders of both Firm A and Firm B from the firm’s Stock Record, surrender both issues to the appropriate designated agent or agents, receive the new – Firm AB – securities for the combined entity and process the required journal entries to adjust the firm’s books and records to reflect the change.

Reverse Splits

In a typical Stock Split a company increases the number of shares of its stock outstanding by dividing the existing shares into smaller units of trading while keeping the Par Value of the outstanding shares constant.   

A Reverse Stock Split is a Corporate Action through which a corporation reduces its number of shares outstanding while keeping the Par Value constant.  For example, in a one to ten Reverse Stock Split  - commonly expressed as 1:10 - a company with 10,000,000 shares outstanding would reduce its shares outstanding by a factor of 10 - to 1,000,000 shares.


A Liquidation occurs when a corporate entity liquidates its assets – sells them for cash – and distributes the cash proceeds from the sale of the assets to its securities holders in exchange for all or part of the outstanding securities held by its investors. 

The firm’s Reorg Department is responsible for the collection of the liquidation proceeds from the designated paying agent, and the distribution of the proceeds to the firm’s eligible clients under the terms of the liquidation.  If required, the Reorg Department must also secures from the firm’s clients any securities to be surrendered.

Unit Splits

A Unit is a bundled investment security – that is, a Unit is an investment security created by combining two or more different securities into a single security for trading. 

For example, a Unit could be the combination of one bond issued by XYZ Co. and one Warrant to purchase shares of XYZ Co. common stock.  The two securities -  the bond and the warrant – are combined and traded together as a single investment security – a unit.

From time to time it becomes necessary to split a unit security back into its component parts.  In the example above, the XYZ Unit would be split into on XYZ Co. bond and one XYZ Co. warrant.  The Reorg Department must work with the security’s agent to surrender the Unit and receive back the individual component securities.  Additionally, the Reorg Department must process the necessary journal entries to reflect the Unit Split in the client accounts on the firm’s books and records.

Bond Redemptions

A Bond is an example of a debt security through which the investor lends cash - for a specified time period - to the corporation issuing the bond.  The cash lent is commonly referred to as the Principal Amount of the loan.  The issuing company agrees to pay the investor interest on the loan amount – commonly referred to as ‘Coupon Interest’ - at a specified rate, and further agrees to repay the loan principal to the bond investors in full at a specified date or interval.

The return of principal to the company’s bondholders is known as a ‘Bond Redemption’.  Examples of Bond Redemptions include:

  • Maturities
  • Calls


A ‘Maturity’ is a type of Bond Redemption.  When the lending period specified in the bond agreement ends the bond is said to ‘Mature’.  This date is referred to as the bond’s Maturity Date.  Upon maturity, the borrowing company repays the Par Value of the loan Amount to the investors.  In addition, the borrower also pays the final interest accrual or coupon on the loan.

The Reorg Department surrenders the matured bonds to the designated agent and verifies that all holders of the maturing bond issue on the firm’s Stock Record receive full payment for both the Bond Maturity and the final coupon payment.  Appropriate journal entries are processed to both credit the cash proceeds to and remove the bond issue from the bondholder’s accounts on the firm’s records. 


A ‘Call’ is also a type of Bond Redemption.  A Call is the repayment of a bond security by the issuer prior to the issue’s Maturity Date typically at a value other than the original Par Value.  Bonds called at a price higher than the Par Value of the bonds are called at a Premium.  Bonds called at a price less than the Par Value of the bonds are called at a Discount.

For example, assume that XYZ Co. has outstanding bonds with a Par Value of $10,000,000 ($100/bond) due to mature on October 15, 2025.  Remember that when determining the actual value of the bond you must take into consideration the bond price multiplier.  A Bond with a Par Value of $100 has a face value of $1,000. 

The company decides to call the bond issue at a price of $101.  The call price of $101 is greater than the Par Value of $100 – therefore, the bonds are called at a premium.  XYZ will pay each bond holder $1,010 for each $1000 bond surrendered pursuant to the call.

Had the issuer instead called the bonds at a price of $99 (discount) each bondholder would receive $990 for each called bond.

There are two types of Calls:

Partial Calls

In a Partial Call the issuer calls back part – but not all - of the outstanding debt issue.  Accordingly, it is probably that some - but not all – of the firm’s clients who own the called issue will be required to surrender the bonds.  The Reorg Department receives notification – typically from a designated agent - of the number of bonds held by its investors that have been called. 

To determine which of the firm’s clients are subject to the partial call the Reorg Department must conduct a impartial lottery.  In the impartial lottery client accounts holding the called bond are randomly selected until a sufficient number of bonds have been identified for the firm to meet its obligation.

The Reorg Department surrenders the called bonds to the designated agent and processes the necessary journal entries to update the client accounts that were subject to the call.

Full Calls

In a Full Call the issuer calls back the entire bond issue.  With a Full Call there is no need to conduct an impartial lottery because all client accounts that hold the called bond are required to surrender the bonds.

As with the Partial Call, in a Full Call the Reorg Department surrenders the called bonds to the designated agent and processes the necessary journal entries to update the client accounts.  

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