NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Settlement Process
A clearing member fails to deliver shares on the pay-in day for a sell obligation in the equity cash segment. Which mechanism does the exchange use to handle the resulting shortage for the buying side?
The exchange conducts an auction of the short-delivered securities. It buys the shares in the market on behalf of the defaulting seller so the buyer receives delivery. If the auction fails, the shortage is closed out and the buyer is compensated at the prescribed close-out price.
- AAuction of the short-delivered securitiesCorrect
- BCancellation of the buyer's demat account
- CAutomatic conversion into a futures contract
- DPostponement of the entire market's settlement by one week
Explanation
When a seller fails to deliver, the exchange conducts an auction to buy the securities and give them to the buyer. If the auction fails to procure them, the buyer is compensated through close-out at a prescribed rate. The other options are not part of the settlement framework.
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