Financial Markets Operations Management by Keith Dickinson

Author:Keith Dickinson
Language: eng
Format: epub, pdf
ISBN: 9781118843901
Publisher: Wiley
Published: 2015-01-20T00:00:00+00:00

Sell-Outs

Q&A

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Question

If a seller has sufficient securities to deliver, why might that transaction fail?

Answer

The only possible answer is that the buyer does not have the cash or credit to pay for the securities. Ordinarily, the buyer would correct that situation at the earliest possible opportunity.

But what if the buyer is unable to arrange suitable financing? In this case, there might be a strong possibility that the buyer is close to defaulting. Were this to be the case, the transaction would remain unsettled and the seller would not receive the cash proceeds from its sale. The ICMA rules make provision for this situation in Section 480: Sell-out. Section 480 is essentially a mirror of Section 450 except that partial deliveries are not acceptable and there is no provision for a pass-on (see Figure 8.9).

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