The Authoritative NSS Page

[Stock]

Janice is correct. Fails to deliver (at the end of one trading day) can be both short, and long.

This is why the settlement process, as a routine, takes more than one day. Currently, it's trade date + 3 days (T+3).

A lot of people have trouble grasping the concept of a long failure to deliver.

I have yet to read a short, easy explanation that most iHubbers could understand. To me, it's like this:

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Imagine you take your laundry to a cleaners that requires you pre-pay when you drop it off. You walk in at 10 a.m. and pay $20 and they promise you 10 clean shirts in 3 days.

You tell the cleaners, no, you need your shirts today. If you're lucky, the lady in the back can clean and press your shirts today. You come back at 5 p.m. and your shirts aren't ready; the lady in the back was too busy, so the owner sent your shirts off site to their central processing location, and the owner promises your shirts will be in tomorrow.

You come back the next day at 5 p.m., all 10 shirts are ready. You got your shirts in 2 days. The owner tells you that you are lucky, you got them a day early, because he rushed things along. He doesn't charge you any more, but you got your shirts for the same $20 you paid up front.

You are satisfied with the clean shirts and good customer service and leave the store happy.

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So, the cleaners FAILED TO DELIVER your shirts on day one.

Does that mean you don't own the shirts?

NO. They are your shirts. You just don't have them yet.

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Sometimes, the market participant that processed your trade can't settle your trade on the same day, either because the shares (long or short) did not come from their OWN inventory, or from the electronic inventory (the DTCC).

The market participant has to get the (long) shares into the electronic inventory for your broker dealer, or wait for settlement somewhere else to process your trade.

Many, MANY long fails to deliver happen with new shares being introduced to the market by low dollar volume microcap companies. Those trades rarely settle on the same day for a LOT of reasons.

Imagine this happening thousands or millions of times per day on high volume stocks. They have three days to get your trade settled in the back office. Because they need it.

Hope this helps...