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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Settlement Process

A broker's client sold shares through the broker, but the shares were not delivered to the clearing corporation by the pay-in deadline. What is the usual immediate consequence for that delivery obligation in the cash market?

A failure to deliver shares by the pay-in deadline is treated as a short delivery, and the exchange handles it through its auction process to buy the securities for the buyer. The trade is not simply cancelled, and the buyer does not bear the shortfall.

  1. AThe trade is cancelled and no one is affected
  2. BIt is treated as a short delivery and goes to the auction processCorrect
  3. CThe buyer is required to pay again
  4. DThe exchange delivers the shares from the broker's proprietary account automatically

Explanation

When a seller fails to deliver by pay-in, the shortage is identified as a short delivery. The exchange then conducts an auction to procure the securities for the buyer. The trade is not cancelled, and the buyer is not asked to pay twice.

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