NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Settlement Process
A broker's client sells shares but the client's shares are not delivered to the clearing corporation by the pay-in deadline, resulting in a short delivery. What is the usual way the exchange handles the buyer's position for such a shortage?
Short delivery is handled through an auction in which the exchange tries to buy the shares and give them to the buyer. If the auction cannot source them, the trade is closed out at a rule-based price and the buyer is compensated, not made to wait or deliver.
- AThe buyer's trade is auctioned and the buyer is credited from the auction proceeds or closed outCorrect
- BThe buyer is asked to wait until the seller delivers in the next month
- CThe buyer's trade is cancelled automatically with no financial settlement
- DThe buyer is required to deliver the shares instead
Explanation
For short deliveries, the exchange conducts an auction to procure the securities and deliver them to the buyer. If the auction fails to find sellers, the transaction is closed out at a price determined under exchange rules, and the buyer is compensated. The buyer is never required to deliver, and trades are not simply cancelled with no settlement.
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