NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Clearing Process
A clearing member's securities pay-in for a T+1 rolling settlement is short on the pay-in day because the client did not deliver shares. Which is the usual outcome for the short-delivered securities on the exchange?
Short-delivered securities are sent to auction, and the defaulting seller bears the auction cost. If the auction yields no shares, the trade is closed out at the prescribed close-out price. The buyer is not simply refunded for free, and the clearing corporation does not supply shares at no charge.
- AThe shortage goes to the auction market and the member bears the auction cost, with close-out if the auction failsCorrect
- BThe buyer is forced to accept cash at the previous day's closing price without any auction
- CThe trade is cancelled with no cost to the seller
- DThe clearing corporation delivers shares from its own holdings at no charge
Explanation
Short deliveries are put through an auction where the buy-in price is charged to the defaulting seller; if no shares are obtained in the auction, the trade is closed out at a prescribed price, typically the highest price from the trade day to the auction day or 20% above the closing price on the auction day, whichever is higher. Cancellation at no cost or free delivery by the clearing corporation is not the rule.
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