What is failure to deliver?

Failure to deliver occurs when one or more member of a transaction does not deliver on their respective commitments. When trading, once any trade has been made, both parties will need to pay and deliver the underlying asset by a specific settlement date.

Where have you heard about failure to deliver?

An unsettled transaction results in a failure to deliver – something most traders will be keen to avoid. This could happen because the party in the short position doesn’t actually own the underlying assets believed to be in their possession or the party in the long position can't pay for transaction.

What you need to know about failure to deliver.

A failure to deliver can take place if there is a technical issue with the clearing house that is responsible for the trade. In the case of forward contracts, if the party who holds the short position fails to deliver, it can cause serious problems for the party who holds the long position. This can be because large amounts of commodities are involved in these contracts, and when the short doesn’t deliver it can be problematic for the long position’s business strategy. Failure to deliver can take place in the derivatives and equity markets.