Question

Which type of settlement can experience bad deliveries?

Hint:

Bad deliveries mostly happen in physical settlements due to manual handling and paperwork issues.

Answer 1

Bad deliveries are defined as instances where delivered securities do not match the agreed-upon settlement terms. This can manifest as:

• Incorrect number of shares delivered.
• Shares failing to meet quality or documentation standards.
• Shares lacking proper endorsement or dematerialization.

These occurrences are more prevalent in physical settlements, which involve the physical transfer of share certificates. Conversely, dematerialized (electronic) settlements significantly mitigate the risk of bad deliveries due to their standardized electronic book-entry system.
Consequently, the settlement type susceptible to bad deliveries is: Answer: Physical settlement