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 sell trade in the normal rolling segment. What is the standard exchange procedure for the resulting short delivery?
When a seller fails to deliver securities on pay-in, the exchange normally conducts an auction to purchase the shortfall and deliver it to the buyer. The defaulting seller bears the cost and penalties. Close-out is used only where the auction cannot obtain the securities.
- AThe trade is cancelled and no further action is taken against the buyer
- BThe buyer is made to wait until the seller delivers whenever possible
- CThe exchange conducts an auction to buy the securities and complete delivery to the buyerCorrect
- DThe seller's broker pays the buyer a fixed 10% penalty and the matter closes
Explanation
For short deliveries in the rolling segment, the exchange runs an auction in which it buys securities to deliver to the buyer. The seller bears the auction cost and any penalties. Cancellation is not the normal route, and the buyer is not made to wait indefinitely; if auction purchase is not possible, close-out applies.
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