Quick Answer
A buy-in obtains securities needed to address a delivery fail, while a close-out resolves a fail-to-deliver position. Under the Regulation SHO close-out requirement, a clearing-agency participant with an equity-security fail must purchase or borrow securities of like kind and quantity within the applicable deadline.
When a delivery obligation fails, operations must obtain securities where needed and resolve the outstanding fail under the applicable close-out requirement.
Buy-Ins and Close-Outs
- Buy-in: A procedure that addresses a fail by obtaining the securities needed for delivery.
- Close-out: A procedure that resolves a fail-to-deliver position.
- Close-out procedures address the resolution of outstanding fails.
- Buy-in → obtains securities for delivery; close-out → resolves the fail-to-deliver position.
Exam Tip: Gotchas
- A buy-in and a close-out are related but distinct. A buy-in obtains securities to address a fail; the close-out is the required resolution of the fail-to-deliver position.
Regulation SHO Close-Out Timing
- Regulation SHO close-out requirement: A participant of a registered clearing agency with a fail-to-deliver position in an equity security must close out the fail by purchasing or borrowing securities of like kind and quantity.
- General deadline: Close out the fail by the beginning of regular trading hours on the settlement day following the settlement date.
- Long-sale or bona fide market-making fail: Close out the fail by the beginning of regular trading hours on the third consecutive settlement day following the settlement date.
Exam Tip: Gotchas
- The general close-out deadline and the long-sale or bona fide market-making deadline are different. The latter uses the third consecutive settlement day following the settlement date.