Fail To Receive

A situation where the broker-dealer on the buy side of a contract has not received delivery of securities from the broker-dealer on the sell side, leading to non-payment for the securities by the buyer.
On this page

Overview

Fail to Receive is a term used in the financial markets to describe a condition where the broker-dealer on the buy side of a contract has not received the delivery of securities from the broker-dealer on the sell side. This non-receipt means that the buyer will not make payment for the securities until they are actually received.

Examples

  1. Equity Markets: An investor buys 100 shares of Company X through Broker-Dealer A. However, Broker-Dealer B, which is supposed to deliver these shares, fails to do so within the stipulated settlement period. This results in a fail to receive for Broker-Dealer A.
  2. Bond Markets: A fund manager purchases $1 million worth of corporate bonds through their broker-dealer. The bonds are not delivered by the counterparty, leading to a fail to receive situation.

Frequently Asked Questions

Q: What are the common causes of a fail to receive? A: Fails to receive can be caused by administrative errors, discrepancies in the trading records, short sales where the securities were not borrowed in time, or other logistical errors.

Q: How does a fail to receive affect the settlement process? A: A fail to receive disrupts the settlement process, delaying the finalization of the trade. This can lead to further trading inefficiencies and potential financial penalties.

Q: What can be done to resolve a fail to receive? A: To resolve a fail to receive, the involved broker-dealers must rectify the discrepancies, complete the necessary administrative adjustments, and ensure the securities are delivered as soon as possible.

Q: Is there a financial penalty for a broker-dealer involved in a fail to receive? A: Yes, broker-dealers may face financial penalties, interest charges, or other sanctions from exchanges or regulatory bodies if they are responsible for repeated or unresolved fails to receive.

Q: Can a fail to receive occur in electronic trading? A: Yes, despite automated systems, fails to receive can still occur due to various technical glitches, administrative errors, or discrepancies in data matching.

  • Fail to Deliver: A scenario where the broker-dealer on the sell side fails to deliver the securities to the broker-dealer on the buy side within the stipulated settlement period.
  • Settlement Period: The time between the trade date and the final settlement date, during which securities and cash must be exchanged.
  • Counterparty Risk: The risk associated with the possibility that one of the parties involved in a trade will default on their contractual obligations.

Online References

Suggested Books for Further Studies

  • “Securities Operations: A Guide to Trade and Position Management” by Michael Simmons
  • “The Fundamentals of Municipal Bonds” by The Bond Market Association
  • “Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions” by Joshua Rosenbaum and Joshua Pearl

Fundamentals of Fail to Receive: Financial Markets Basics Quiz

Loading quiz…

Thank you for exploring the intricacies of “Fail to Receive” in financial markets. Continue to expand your knowledge for greater success in finance!

Fail, Failure
Fail to Deliver