NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Clearing Process
A trading member's client sells shares but fails to deliver them to the clearing corporation by the pay-in deadline. Which outcome best describes the usual handling for the short delivery in the normal rolling cash segment?
Short deliveries are handled through an auction. The exchange buys the securities in the market for the buyer, and the defaulting seller bears the cost difference and charges. If the auction cannot be completed, the buyer is closed out at a determined price.
- AThe buyer's trade is cancelled permanently and no one is compensated
- BThe shortage goes to the auction process, where the exchange arranges to buy the securities and the defaulting seller bears the costCorrect
- CThe buyer is required to pay the seller a penalty
- DThe securities are issued afresh by the company
Explanation
For short deliveries the exchange conducts an auction to procure the securities for the buyer. The defaulting seller bears the auction price difference and related charges. If the auction fails, the buyer is closed out at a determined price. The buyer is not penalised.
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