Failure to Deliver

Failure to deliver occurs when a party in a financial transaction does not provide the required securities or cash by the settlement date. This failure is common in stocks, options, and futures markets and can result from inventory shortages, technical errors, or intentional practices like naked short selling. Such failures disrupt market operations, leading to price distortions and increased volatility.

Example

An investor who sells shares short but cannot borrow and deliver the required shares by the settlement date experiences a failure to deliver.