BROWSE

Failure To Deliver

Definition

In finance, a failure to deliver is the inability of a party to deliver a tradable asset, or meet a contractual obligation. A typical example is the failure to deliver shares as part of a short transaction. The Securities and Exchange Commission publishes "fails-to-deliver" data regarding transactions in the United States.

What is 'Failure To Deliver'

An outcome in a transaction where one of the counterparties in the transaction fails to meet their respective obligations. When failure to deliver occurs, either the party with the long position does not have enough money to pay for the transaction, or the party in the short position does not own the underlying assets that are to be delivered. Failure to deliver can occur in both equity and derivatives markets.

Explaining 'Failure To Deliver'

Whenever a trade is made, both parties in the transaction will have to transfer the cash and assets before the settlement date. Subsequently, if the transaction is not settled, one side of the transaction has failed to deliver. Failure to deliver also can occur if there is a technical problem in the settlement process carried out by the respective clearing house.

For forward contracts, a party with the short position's failure to deliver can cause significant problems for the party with the long position, because these contracts often involve significant volumes of commodities that are pertinent to long position's business operations.

Failure to deliver is also important when discussing naked short selling. When naked short selling occurs an individual agrees to sell a stock that they neither own nor have borrowed. Subsequently, the failure to deliver creates what are called "phantom shares" in the market which may dilute the price of the underlying stock.


Further Reading


Value destruction and financial reporting decisions
www.tandfonline.com [PDF]
… To avoid the severe market reaction to a failure to deliver on the earnings expectations of … Not surprisingly, almost all CFOs prefer smooth earnings, but a surprising 78 percent of the surveyed executives would destroy economic value in exchange for smooth earnings …

Medicines for pediatric oncology: can we overcome the failure to deliver?Medicines for pediatric oncology: can we overcome the failure to deliver?
www.tandfonline.com [PDF]
… To avoid the severe market reaction to a failure to deliver on the earnings expectations of … Not surprisingly, almost all CFOs prefer smooth earnings, but a surprising 78 percent of the surveyed executives would destroy economic value in exchange for smooth earnings …

Fails-to-deliver, short selling, and market qualityFails-to-deliver, short selling, and market quality
www.sciencedirect.com [PDF]
… To avoid the severe market reaction to a failure to deliver on the earnings expectations of … Not surprisingly, almost all CFOs prefer smooth earnings, but a surprising 78 percent of the surveyed executives would destroy economic value in exchange for smooth earnings …

Modernizing the Australian education workplace: A case of failure to deliver for teachers of young disadvantaged adolescentsModernizing the Australian education workplace: A case of failure to deliver for teachers of young disadvantaged adolescents
www.tandfonline.com [PDF]
… To avoid the severe market reaction to a failure to deliver on the earnings expectations of … Not surprisingly, almost all CFOs prefer smooth earnings, but a surprising 78 percent of the surveyed executives would destroy economic value in exchange for smooth earnings …

Failure is an option: Impediments to short selling and options pricesFailure is an option: Impediments to short selling and options prices
academic.oup.com [PDF]
… To avoid the severe market reaction to a failure to deliver on the earnings expectations of … Not surprisingly, almost all CFOs prefer smooth earnings, but a surprising 78 percent of the surveyed executives would destroy economic value in exchange for smooth earnings …

A Failure to Deliver: Municipal Poverty and the Provision of Public Services in Imperial São Paulo, Brazil 1822–1889A Failure to Deliver: Municipal Poverty and the Provision of Public Services in Imperial São Paulo, Brazil 1822–1889
journals.sagepub.com [PDF]
… To avoid the severe market reaction to a failure to deliver on the earnings expectations of … Not surprisingly, almost all CFOs prefer smooth earnings, but a surprising 78 percent of the surveyed executives would destroy economic value in exchange for smooth earnings …

State failure, economic failure, and predatory organized crime: A comparative analysisState failure, economic failure, and predatory organized crime: A comparative analysis
journals.sagepub.com [PDF]
… To avoid the severe market reaction to a failure to deliver on the earnings expectations of … Not surprisingly, almost all CFOs prefer smooth earnings, but a surprising 78 percent of the surveyed executives would destroy economic value in exchange for smooth earnings …



Q&A About Failure To Deliver


How can failure to deliver occur?

Failure can occur due to technical problems within settlement processes carried out by clearing houses.

Who does failure to deliver affect?

Failure to deliver affects both parties involved in a trade.

What should you do if your counterparty fails to meet their obligations after entering into an agreement with them?

You should contact your broker immediately and inform him/her about your situation so he/she can help you resolve it quickly without incurring too much loss on your

Why does failure to deliver occur?

Failure occurs when either the party with the long position does not have enough money or the party in the short position does not own the underlying assets that are supposed be delivered.

What is failure to deliver?

Failure to deliver is an outcome in a transaction where one of the counterparties in the transaction fails to meet their respective obligations.

How do you prevent failures of delivery from occurring during trades involving commodities such as gold, oil, etc.?

To prevent failures from occurring during trades involving commodities such as gold, oil, etc., you must ensure that your counterparty has enough cash or collateral available before entering into any agreement with them.

What happens if there is a failure of delivery for forward contracts?

The person who has taken on a long position will suffer losses because they will have lost control over their assets and may incur additional costs associated with replacing them.

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