Series 52: 9.2.7.2. Close-Out By Seller

Taken from our Series 52 Online Guide

9.2.7.2. Close-Out by Seller

When a seller makes a good delivery but the buying firm rejects the transaction, either because it can’t pay for it or because it doesn’t believe it was a good delivery, the seller (delivering party) has the option to close out the transaction.

Upon receiving a notice of rejection from the purchaser, the seller has one business day to initiate a close-out. It does so by notifying the purchaser using the inter-dealer communication system of the clearing agency that compared the trade.

The information required in this notice is in many ways similar to that of a purchaser-initiated close-out described in the previous section: the purchaser and seller must be identified, the securities must be described, the price of the transaction must be specified, etc. The notice must be accompanied by a copy of the purchaser’s confirmation of the transaction to be closed out, or other evidence of the contract between the parties.

The notice given by the seller must specify how long the seller will wait before executing the close-out. This deadline must be no earlier than one business day after the notice is sent. The purchaser can avoid the close-out by accepting delivery of the securities by the deadline. If the purchaser does so, the seller can require the purchaser to pay for any expenses the seller incurred due to the rejected delivery.

If the deadline passes and the purchaser has not accepted delivery, the seller may then execute the close-out by selling the securities to someone else, in the secondary market, at the current market price, for the account and liability of the purchaser. This is known as a sell-out. The seller must notify the purchaser by telephone and in writing and forward a copy of the trade confirmation.

Any difference between the current market price and the price on the original confirmation must be paid by the appropriate party within five business days of the date the close-out is executed. If t

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