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NISM Certifications · NISM-Series-VI: Depository Operations · Functions of Depository Participant - Trading and Settlement

A client sold shares on the exchange and gave the delivery instruction to his DP, but the broker's pool account did not receive the shares before the pay-in deadline. What is the most direct consequence at the settlement level?

Failure to deliver shares into the pool account before pay-in creates a short delivery for the broker. The clearing corporation then settles the shortfall through auction or closeout, with costs falling on the defaulting seller side. The trade is not cancelled and the depository does not supply shares from elsewhere.

  1. AThe trade is cancelled and no penalty arises
  2. BThe shares are automatically converted into physical form
  3. CThe broker faces a short delivery, leading to auction or closeout for the shortfallCorrect
  4. DThe depository credits the buyer from the DP's own holdings

Explanation

If securities are not delivered by pay-in, the broker is short on delivery. The clearing corporation handles the shortfall through an auction or closeout, and the seller side bears the cost. Trades are not simply cancelled, and the depository never credits from a DP's own holdings.

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