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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, but the shares were not debited in time for pay-in. What is the usual consequence in the settlement?

Failure to deliver securities in pay-in results in a short delivery, which the clearing corporation resolves through its auction or close-out mechanism, with the defaulting seller bearing the cost. The trade is not silently cancelled and the DP does not have to buy the shares.

  1. AThe trade is automatically cancelled by the depository without any consequence
  2. BThe clearing corporation treats it as a short delivery and handles it through its auction or close-out processCorrect
  3. CThe DP must buy the shares from the market on its own account
  4. DThe buyer's shares are delayed indefinitely with no remedy

Explanation

When securities are not delivered in pay-in, it is a short delivery. The clearing corporation resolves it by auction or close-out, and the defaulting seller bears the costs. The trade is not simply cancelled, and the DP has no obligation to buy.

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