NISM Certifications · NISM-Series-VI: Depository Operations · Functions of Depository Participant - Trading and Settlement
A client gave a delivery instruction for a market sale, but the shares were not delivered because of insufficient balance in the account on the pay-in day. Which statement most accurately describes the consequence under the settlement process?
The delivery fails and results in short delivery for the broker, which the exchange handles through its auction or close-out mechanism, with costs borne by the defaulting seller. The depository does not lend shares and the DP is not required to buy them.
- AThe depository automatically borrows shares to complete the delivery
- BThe instruction fails at pay-in; the broker's delivery is short, and the exchange handles the shortfall through its auction or close-out mechanism for the short-delivered securitiesCorrect
- CThe DP is liable to buy the shares in the market
- DThe trade is cancelled with no consequences for the seller
Explanation
If securities are not delivered by the pay-in deadline, the delivery is short and the exchange conducts an auction, or closes out the position, as per its rules. The seller bears the costs. The depository does not lend shares, and the DP is not responsible for buying shares, nor is the trade simply cancelled.
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