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This question follows from: What does it mean for a company to redeem its preferred stock?

If I own a preferred stock and the issuer chooses to exercise its right to call, how does the redemption take place?

Am I contacted by the company and/or the brokerage house to perform a "sell" transaction?

Or will these shares automatically "vanish" from my account and be replaced by cash (redemption price times the number of shares)?

Or something else?

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The redemption value of your position is the number of shares times the redemption price. On the redemption date, your shares will disappear from your account and the cash value will replace it.

For tax purposes, the redemption price is your sale price. I can't speak to what all brokers do but my broker does not charge a commission for this transaction.

Once a preferred stock has been called, it may trade close (usually a bit lower) to par (the redemption price) for a good amount of time before the call date. If so, it may make sense to sell the stock early, taking a small haircut so that the cash can be put to better use. If a Pfd stock is being redeemed at $25 a month from now, I'd take $24.95 now instead of having dead money for a month.

For example, JPM-B announced on 2/01/19 that the issue was being called on 3/01/19 for $25. It was sellable on 2/01/19 for $24.97

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  • Presumably if you sold early you would pay commission, so you would need to factor that into any sell now vs. hold until the call-date decision?
    – TripeHound
    May 2, 2019 at 10:16
  • Yes, one would have to factor a commission into the decision - for me it's an inconsequential factor. For those paying the typically higher $6.95 per trade it's still meaningless if you own perhaps 500 or 1,000 shares. Take my JPM-B example. 1,000 shares sellable one month early at $24.97 and a $6.95 commission. That's $24,963.05 . Would you wait 30 days to earn $36.95? 2% interest exceeds that. I'd rather have my money 'working' for me. Another 6% preferred would earn $125 in the same time frame. Even more if you go up the rate scale. It's a no brainer :->)
    – Bob Baerker
    May 2, 2019 at 11:05

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