Fails to deliver (finance)

In finance, the term failure to deliver (or fails-to-deliver) typically refers to the inability of a party to deliver a financial instrument, or meet a contractual obligation. A typical example is the failure to deliver shares as part of a short transaction, for which Regulation SHO was designed as a remedy in the United States.[1] The Securities and Exchange Commission publishes "fails-to-deliver" data regarding transactions in the United States.[2]

Stocks bought and sold in transaction must be settled within 3 days. The buyer must deliver the cash and the seller the stock. If either party fails, a failure-to-deliver takes place.[3] Sometimes deliberate fail-to-delivers are used to profit from falling stocks, so that the stock can later be purchased at a lower price, then delivered, e.g. in the week of March 10, 2008, just before the failure of Bear Stearns, the fail-to-delivers increased by 10,800 percent.[3]

According to CNN in the US markets, fails-to-delivers had reached $200 billion a day in September 2011, but no similar data has been available for Europe.[4]

See also

References

  1. ^ Handbook of hedge funds by François-Serge Lhabitant 2007 ISBN 0470026634 page 132
  2. ^ SEC Fails-to-deliver data
  3. ^ a b History of Greed: Financial Fraud from Tulip Mania to Bernie Madoff by David E. Y. Sarna 2010 ISBN 9780470601808 Chapter 10: Market Manipulation [1]
  4. ^ CNN/Fortune September 27/2011