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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.

Key points

• Occurs when securities or cash are not delivered on time.

• Can disrupt market stability and affect prices.

• Monitored by regulators to maintain market integrity.

Quick Answers to Curious Questions

It often results from inventory shortages or operational issues, affecting the settlement process.

Regulators impose penalties, enforce buy-ins, and monitor trading practices to prevent systemic disruptions.

It can lead to market instability, affect pricing, and erode investor confidence.

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