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 occur when the securities delivered in settlement do not conform to the terms agreed upon, such as:

Wrong quantity of shares delivered
Shares not meeting quality or documentation requirements
Shares that are not properly endorsed or dematerialized
These issues are more common in physical settlements, where actual share certificates are exchanged.
In contrast, dematerialized (electronic) settlements greatly reduce the risk of bad deliveries due to standardized electronic book-entry transfers.
Therefore, the type of settlement that can experience bad deliveries is: Answer: Physical settlement