Buying in (securities)
Encyclopedia
In the securities market buying in refers to a process by which the buyer of securities, whose seller fails to deliver the securities contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

ed for, can 'buy in' the securities from a third party with the defaulting seller to make good.

Buy-in rule on the UK equity market

On the English
England
England is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...

 stock exchange
Stock exchange
A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...

, a transaction by which, if a member has sold securities which he fails to deliver on settling day, or any of the succeeding ten days following the settlement, the buyer may give instructions to a stock exchange official to "buy in" the stock required. The official announces the quantity of stock, and the purpose for which he requires it, and whoever sells the stock must be prepared to deliver it immediately. The original seller has to pay the difference between the two prices, if the latter is higher than the original contract price. A similar practice, termed "selling out
Selling out
"Selling out" is the compromising of integrity, morality, or principles in exchange for money or "success" . It is commonly associated with attempts to tailor material to a mainstream audience...

," prevails when a purchaser fails to take up his securities.

The practice is not limited to the UK Stock Exchange but is found in various forms on most stock exchanges. The rules vary according to the local regulations, and the party which fails to deliver is usually penalised and may even be suspended.

Buy-in rule on the German equity market

Trade date (TD) : Date the shares are sold.

Settlement date (SD)= TD + 2 trading days

If you are short a stock, buy-in can occur if trade has not settled on SD+5.

The market is not obliged to send a buy in notice.

You have until 1:15 p.m. German time to settle the trade on TD +7 (SD +5).

If you did not manage to deliver the shares at 1:15 p.m. on SD+5 the 'market' tries to buy back your short sale (buy in).
The buy-in occurs on an internet based auction between 4 p.m. and 4:30 p.m. (and not on the exchange)
Price limit is set at + and - 200% of the stocks previous day close.

A buy-in is successful if the market manages to find the total size to cover the short sale (it is a matter of size not price). The cost for the short seller can be very high but will remain successful for the market regulators.

A buy-in is unsuccessful if the market does not manage to find the total size to cover the short sale.
if unsuccessful, the next possible buy in date is ST+ 10 days.

Buy-in rule on the Spanish equity market

Trade date (TD) : Date the shares are sold.

Settlement date (SD) = TD + 3 trading days (example: If TD is Thursday 23 Feb 06, then the SD will be Tuesday 28 Feb 06)

TD + 4 (SD +1): if trade has not been delivered, 10 basis point fine on the total amount of the short sale

TD + 5 (SD +2): if trade has not settled by 4 p.m. local time, the market automatically 'buys-you-in'

Buy-in rule on the Singapore equity market

The following apply to the Singapore Exchange
Singapore Exchange
Singapore Exchange Limited is an investment holding company located in Singapore and providing different services related to securities and derivatives trading and others. SGX is a member of the World Federation of Exchanges and the Asian and Oceanian Stock Exchanges FederationSingapore Exchange...

(SGX) mainboard and Catalist (SGX junior board Sesdaq transformed into a new outfit on 17 December 2007 and renamed Catalist).

Trade Date (TD) : Date the shares are sold.
  • Shares must be available at the end of TD (i.e. you have to cover in the same day).


Settlement Date (SD) (aka Due date) : * Trade date (TD) + 3
  • Date the shares are debited from your account.
  • If shares were not available on TD (see above), SGX will automatically buy in for you.
  • The initial price is set at 2 tick above SD (TD+3) close or market price at TD+4, whichever is higher. The price will be continually increased until a seller is found.
  • The buy-in will be subjected to a brokerage commission of 0.75% plus additional fees and taxes. From my experience, it works out to around 0.93%. This excludes commission, fees and taxes earlier incurred when selling.


Note : Any long position after TD will be a new contract. It cannot be used to cover your short position.

Alternatives to short selling available on the SGX :
  1. Borrow the share and proceed to sell a stock.
  2. Buy a put warrant
  3. Short a CFD.
  4. Sell a Single Stock Future (SSF) in the futures market.
The source of this article is wikipedia, the free encyclopedia.  The text of this article is licensed under the GFDL.
 
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