Stock Market Loopholes: Failure To Deliver


I put together a primer to explain what Failure To Deliver is in the context of stocks, and how it might be impacting you without you knowing it. The intent here is just an educational overview of some “behind the scenes” market mechanics that many may not be familiar with.

Thought this might be of interest since the upcoming Jon Stewart episode will be focused on the stock market, and as Jon put it in the teaser clip recently uploaded to his YouTube channel “The stock market is a bunch of people that have MBAs and from the moment they wake up to the moment they go to sleep, they're inventing new and interesting ways to suck money out of your money.”

I had created it in an infographic type of style to hopefully make the content easier to absorb, so it's an image and it looks like images aren't allowed here. I posted the images (there's a “dark mode” and a “light mode” version) on my profile and here is the link (directly to the post on my reddit profile, not to another sub): https://www.reddit.com/user/catsinbranches/comments/t36etg/ftds_infographics_dark_mode_and_light_mode/

If you don't want to check out the infographic, the short version is basically that due to transaction settlement timelines, even though stocks show up in your brokerage account immediately when you place a transaction, your broker doesn't receive those shares right away. Sometimes they actually don't show up to your broker for quite a while. When these shares aren't sent to your broker within the expected settlement timelines, it becomes a Fail To Deliver (FTD) from the party they purchased from, and a Fail To Receive for the broker. This is a common strategy used in large scale short selling, and large volumes of FTDs can result in diluting the pool of outstanding shares for an impacted ticker, and consequently reduce the value of your investment.

If anyone is interested in checking out the raw data for FTDs, it's available on the SEC website using this link: https://www.sec.gov/data/foiadocsfailsdatahtm

Curious to hear what others here think of Fails To Deliver and how common they've become.


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