In my experience, if a client misses a settlement date (purchase without access to the funds to pay for it), they simply get charged interest on the debt. The trade is still completed.
I don’t know how feasibly that could work in the reverse. How could a company fail to deliver shares of a purchase to a client? We are talking about ones and zeros and not physical securities.
If a client sells a position, I don’t see how a company would fail to provide the proceeds in a timely manner. I guess it might be an issue of the client is in inordinate amount of the broker’s business or if there was a run on the broker, but I am not sure an extra day necessarily helps that situation much (recent chicanery with Robinhood excluded).
Hi Paul - ‘naked shorts’ would be prime candidates for failed trades in which the seller doesn’t actually have possession or access to the number of shares contracted to be sold
According to this Nasdaq article, long investors also ‘can fail trades if there is a problem with account allocations and booking trades through to custodian accounts.’
I’m sure this happens on a margin account. Not sure about a cash account.
When I sell a stock on my IRA account and then buy another, Fidelity sends me a notice that if the sell trade fails I will be in violation of their rules. But I don’t know what that means. I’ve never had a failed trade and assume that is language required by their lawyer (maybe to provide defense in a resulting lawsuit).
Google news has lots of these. The change from two day to one day settlement received much attention in the news. The failed trade part got buried apparently.
Happens on a cash account too. Interest on day 1 and force sale on day 10.
That is crazy. I sell and buy with the proceeds on the same day nearly every time - across 3 different brokers over the last 20 years and I have never experienced that.
Thanks, my impression from the link is that a trade failure occurs between two intermediaries and not between the broker and the client. We likely never even are aware of the trade failure and, for example, Fidelity and Schwab likely work it out behind the scenes when a failure occurs. Just a guess.