Below is a description of the steps taken to determine which accounts are called for redemption for a partially called bond:
Each bond denomination held in a client account is assigned a consecutive sequential number. Generally, each $1,000 principal amount of the bond is one number.
- Account A has 5,000 bonds. Those bonds are assigned numbers 1 thru 5.
- Account B has 10,000 bonds. Those bonds are assigned numbers 6 thru 15.
- This process is carried out for all accounts holding the bond being called.
A “call increment” must be determined: The total amount of Janney’s eligible callable securities is divided by the quantity of the firm’s securities called by the depository.
- 1,186,000 bonds held by Janney/50,000 bonds called = 23.72 (The Call Increment)
Next, a random “starting” number is identified at the account level, which is the square root of the lottery date. To calculate this number, take the square root of the call date and multiply by the number representing the day the of the lottery being run.
- Lottery date is May 30, 2002 = 053002
- Square root of 053002 x 30 = 1,260.9758126
Only the fractional portion of the number is used (0.9758126) and is truncated down to fit in the number range of the called bonds. In this case “975” is the starting position.
After identifying the starting number, the incremental number is determined to indicate what increments the system will move in, in order to select the next called account. The starting number is added to the call increment number to get each subsequent number.
- 975 added to 23.72 = 998.72 (Standard rounding rules apply.)
- 999 is then the next sequential number called.
Once we get to the end of the sequential numbers, if there are additional bonds to be called, the system will start back at bond #1 instead of the random starting number and repeat the process using the same incremental number.