NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Clearing Process
A broker's client sells shares worth Rs 5,00,000 but fails to deliver them by the pay-in time in the rolling settlement. Which outcome is the standard consequence at the exchange level for the broker's short delivery?
Short delivery is sent to auction, where the exchange arranges to buy the shares for the buyer. The defaulting seller bears any difference between the auction price and the original price, along with penalties, so the buyer is not left without delivery.
- AThe trade is cancelled and no further action is taken
- BThe shortage is put through the auction process and the seller bears the auction costCorrect
- CThe buyer must wait indefinitely for delivery
- DThe clearing corporation delivers the shares from its own holdings without charge
Explanation
Short deliveries are handled via the auction mechanism, where the clearing corporation arranges purchase of the shares and the defaulting seller bears the auction price difference and penalty. Cancelling the trade or free delivery by the clearing corporation does not occur in the normal course.
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