Naked Short Sales and Fails to Deliver: An Overview of Clearing and Settlement Procedures for Stock Trades in the US
Journal of Securities Operations and Custody, Forthcoming
17 Pages Posted: 7 Mar 2010
Date Written: October 27, 2009
This article outlines the process of clearing and settlement for stock trades in the US. It pays particular attention to what happens when the seller of a stock fails to deliver that stock at settlement and describes the mechanisms to resolve delivery failures. Fails to deliver can occur for a number of reasons, such as human error, administrative delays and the controversial practice of naked short selling. This article helps understand the implications of naked short selling for trade counterparties and, more generally, the effects of naked short selling on the clearing and settlement system.
Keywords: Clearing, Settlement, Fail to Deliver, Naked Short Selling, National Securities Clearing Corporation (NSCC), Depository Trust Company (DTC)
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