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Fails to deliver

A settlement failure where the seller does not deliver securities on the due date, leaving the buyer paid but unsecured until the position is closed or bought in.

Fails happen for mundane reasons: operational errors, a recalled borrow, or a chain of dependent settlements where one link breaks. Persistent fails in a specific security can also indicate naked shorting.

Regulation SHO requires that fails in threshold securities be closed out within a set window, forcing the broker to buy shares in the market regardless of price. A forced buy-in in a thin, heavily shorted name contributes to the mechanics of a short-squeeze.

Shortened settlement cycles reduce the window in which fails can accumulate but leave less time to fix operational problems. Published fails data is a useful, if noisy, indicator of borrow stress in individual names. See locate-requirement and t-plus-one.

Related: locate-requirement, hard-to-borrow, short-squeeze, t-plus-one, settlement, securities-lending

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Bollinger bands squeezing and then expandingA price line between three curves: an average in the middle and a band above and below it that pinch together in the centre of the chart and then spread apart as the price runs higher.PRICE WITH BOLLINGER BANDS (20, 2)SQUEEZEupper bandpricemiddle band20-day averagelower bandbands widen asvolatility risesIllustrative prices. The bands sit two standard deviations from the average.
Bollinger bands: squeeze and expansion. The middle line is a 20-day average and the outer bands sit a set number of standard deviations away, so they measure how far price has recently been straying. When moves are small the bands pinch together; when moves grow they spread apart.

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