When a security transaction (e.g. a purchase or sale of securities) is not completed according to the terms to the contact the parties have certain rights and responsibilities to remedy the failed transaction. For example, if a seller fails to deliver securities to a buyer, the buyer has the right to “buy-in,” or purchase, the securities in the open market, and pass any additional costs in connection with the purchased securities (e.g. a higher share price) to the failing seller.
There are rules, however, that dictate when and how a buy-in can occur. These rules are drawn from FINRA’s Uniform Practice Code Rule 11810 as well as the SEC’s Rule 204. Below is a chart explaining how these rules interact and apply.
Rule
Scenario
Consequence
Note
A related rule deals with sell-outs, which occurs when a buyer of securities fails to pay for the purchased securities. The sell-out permits the selling party to sell the securities in the best available market and charge any losses incurred (e.g. a lower sale price) to the failing party.
Rule
Scenario
Consequence
Note
Knopman Notes
Candidates should understand the consequences of failing to complete a securities transaction, including both for regular customers (the longer 10 business day after settlement time-frame) and for clearing firms (e.g. member firm to member firm) the shorter T+6 for long fails and T+4 for short fails.
Relevant Exams
Series 7, Series 24, Series 65, Series 66, Series 79
Dave's mission (and job: Managing Director of Course Design) is to make FINRA exam training engaging, approachable, and dare he even say, enjoyable. Having trained and coached over ten thousand students to exam success he knows how to present complex subjects in memorable and understandable ways. Prior to joining Knopman Marks in 2011, Dave practiced bankruptcy law at Weil, Gotshal & Manages and served as a law clerk in a the Southern District of New York Bankruptcy Court working on the General Motors and Lehman Brothers bankruptcies. Building on his legal expertise and training allows him to keep all our courses updated with the latest legislative and rule-making changes. Dave currently trains for the Securities Industry Essentials (SIE) exam and the Top-Off Series 6, 7, 24, 57, 63, 65, 66, 79, 86, 87, and 99 exams. He also delivers executive one-on-one training and shares his passion for learning outside of work as a ski instructor and yoga teacher. Dave graduated magna cum laude from Fordham Law School, and cum laude with a BA from the University of Pennsylvania.
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