NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Settlement Process
A buyer purchased shares and the auction for a short delivery failed to procure any shares. How is the buyer's obligation generally settled?
The trade is closed out, and the buyer receives the close-out amount in cash instead of the shares. The seller who defaulted bears the cost, since an unsuccessful auction leads to close-out at the prescribed price.
- AThe buyer receives the shares through a later settlement automatically
- BThe trade is closed out and the buyer is paid the close-out amountCorrect
- CThe buyer must pay double the trade value
- DThe buyer's broker must deliver shares from its own demat account
Explanation
If no shares are obtained in the auction, the transaction is closed out, with the buyer credited the funds at the close-out rate and the seller bearing the difference. The buyer is not charged extra, and the broker is not obliged to deliver its own shares. Shares do not roll to a later settlement.
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