FTD
Failure to deliver
Summary
- FTDs (fails-to-deliver) occur when a party in a stock transaction fails to deliver the security to the buyer by the settlement date
Causes
- Short Selling Without Borrowing: A trader sells a stock short without borrowing or locating shares to deliver, leading to a failure to provide them when the buyer expects delivery.
- Administrative Errors: Mistakes in processing trades, such as incorrect recording or communication between brokers, can cause a failure to settle.
- Stock Recall or Unavailability: Borrowed shares are recalled by the lender, or shares are unavailable for borrowing at settlement, causing a delivery failure.
- Insufficient Inventory: The seller does not possess or cannot acquire the required securities due to a shortage in the market.
- Market Disruptions: Technical glitches, trading halts, or other unforeseen events can prevent timely settlement of securities.
Persistent FTDs
- Indicators of Market Manipulation: Persistent FTDs may result from practices like naked short selling, where traders sell shares they haven't borrowed, artificially increasing supply and pressuring the stock price downward.
- Liquidity and Pricing Issues: Ongoing FTDs can distort the true value of a security, creating supply and demand imbalances that harm market stability and investor confidence.
- Regulatory Concerns: Regulators often view persistent FTDs as red flags, investigating these patterns to enforce compliance with trading rules and prevent market abuse.
- Impact on Companies: Issuing companies may suffer from persistent FTDs due to depressed stock prices, reduced investor confidence, and limited access to capital.
- Investor Awareness: For investors, persistent FTDs can signal potential risks, manipulation, or transparency issues in the trading of a specific security.