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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Settlement Process

A clearing member's client sold 500 shares through a broker. The shares were not delivered to the clearing corporation by the pay-in deadline, resulting in a short delivery. What is the usual first step taken by the exchange in the normal segment to resolve such a shortage?

The exchange conducts an auction to buy the short-delivered securities so the buyer receives them. Only if the auction fails is the trade closed out at the prescribed close-out price, so the auction is the standard first step.

  1. ACancel the buyer's trade and return the funds immediately
  2. BConduct an auction for the short-delivered securitiesCorrect
  3. CSuspend the buyer's demat account
  4. DAllow the seller to deliver after one month without any penalty

Explanation

When a seller fails to deliver, the exchange conducts an auction on the day after pay-in to procure the securities for the buyer. If the auction fails, the trade is closed out at a prescribed price. Immediate cancellation is not the first step, and no demat account is suspended or penalty-free delay allowed.

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