NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Clearing Process
A member's client sold 500 shares, but the member failed to deliver them in the pay-in for the cash segment. The exchange then holds an auction for the shortage. If the auction purchase price is higher than the original sale price, who bears the difference?
The defaulting seller-member bears the difference. When shares are short delivered and bought in an auction at a higher price than the original sale price, the shortfall is debited to the member who failed to deliver, along with applicable penalties, rather than to the buyer.
- AThe defaulting seller-memberCorrect
- BThe buying member who was short-delivered
- CThe clearing corporation's core settlement guarantee fund in all cases
- DThe depository
Explanation
The member who short delivered is responsible for the auction cost. The buyer receives the shares via auction or is credited at close-out; the seller bears the price difference plus applicable penalties. The guarantee fund is not the first recourse.
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