NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Settlement Process
A clearing member fails to deliver securities on the pay-in day for a trade. Which mechanism is used by the exchange or clearing corporation to complete delivery to the buyer for such shortages in the normal rolling segment?
The clearing corporation conducts an auction for securities that were short-delivered. It buys the securities in the market to give to the buyer, and the defaulting seller bears the cost. If the auction fails, the trade is closed out at a prescribed price.
- AAuction of the short-delivered securitiesCorrect
- BCancellation of the buyer's order by the broker
- CAutomatic transfer of the seller's other holdings
- DPostponement of the buyer's pay-out to the next month
Explanation
When a seller fails to deliver, the clearing corporation conducts an auction, buying the securities in the market to deliver to the buyer. If the auction cannot be completed, the trade is closed out at a prescribed price. Other options are not standard procedures.
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