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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, and the shares are not available for auction. What is the usual outcome for the buyer's side of that trade?

If shares are not delivered and the auction cannot procure them, the exchange closes out the trade, and the buyer receives funds as a credit at the close-out price instead of shares. The buyer's money is not forfeited, and the trade is not converted into any other position.

  1. AThe buyer must pay double the trade value
  2. BThe trade is closed out and the buyer is credited at the close-out priceCorrect
  3. CThe buyer's trade is converted into a futures position
  4. DThe buyer's funds are forfeited by the exchange

Explanation

When a seller short-delivers and the auction fails to obtain shares, the exchange closes out the trade. The buyer receives credit for the close-out amount, based on the applicable close-out rate, rather than shares. Funds are not forfeited, and no conversion to a derivative position happens.

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