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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Settlement Process

If a short-delivered security cannot be purchased in the auction, what is the usual result for the buyer?

If an auction cannot procure the short-delivered securities, the trade is closed out. The buyer receives the close-out amount determined under exchange rules, and the defaulting seller bears the cost. The buyer is not made to wait indefinitely or to pay extra margin.

  1. AThe buyer receives the shares from the next trading day's market
  2. BThe buyer is allotted shares from the exchange's own holding
  3. CThe trade is closed out and the buyer is paid the close-out amount, which is based on defined price rulesCorrect
  4. DThe buyer must pay additional margin until delivery occurs

Explanation

When the auction fails to procure the securities, the transaction is closed out. The buyer receives the close-out amount, determined by rules such as the highest of specified prices, and the seller bears it. Exchanges do not supply shares from their own holdings, and the buyer is not charged margin for the seller's failure.

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