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

A clearing member fails to deliver securities in the pay-in for a trade in the normal rolling settlement segment. Which is the usual approach by the clearing corporation for the resulting short delivery to the buyer in the cash market?

Short delivery is handled through the auction mechanism. The exchange or clearing corporation tries to buy the shortfall in an auction for the buyer, and if the auction fails, the buyer is credited funds through close-out at the prescribed close-out price.

  1. AThe trade is cancelled and the buyer receives nothing
  2. BThe shortage is handled through the auction mechanism, with the buyer getting auction securities or credit at the close-out priceCorrect
  3. CThe buyer must wait indefinitely until the seller delivers
  4. DThe depository transfers shares from the seller's other holdings automatically

Explanation

Short deliveries in the cash segment are put through an auction in which the clearing corporation buys the shortfall from the market for the buyer. If the auction fails, the buyer is compensated by close-out. Cancelling the trade or indefinite waiting is not the standard process.

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