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 trade in the normal rolling segment. Which mechanism does the exchange primarily use to deal with such a short delivery?
The exchange conducts an auction for the shortfall securities. This allows the buyer to receive the shares through purchase in the auction, with the defaulting seller bearing the cost, and close-out applies only if the auction does not succeed.
- AAuction of the shortfall securitiesCorrect
- BCancellation of the buyer's trade with no further action
- CAutomatic extension of settlement by one week
- DTransfer of the obligation to the buyer's broker
Explanation
When a seller fails to deliver, the exchange conducts an auction to procure the securities for the buyer. The buyer is not simply cancelled out as a routine step, and the settlement is not extended by a week. If the auction fails, the trade is closed out at a prescribed price.
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