- Those who fail to deliver the securities will be notified with a buy-in notice. Failure to answer the buy-in notice means the broker can buy the securities and deliver them on your behalf. You must then pay back the broker at whatever price.
- In the securities market it refers to a process by which the buyer of securities, whose seller fails to deliver the securities contracted for, can 'buy in' the securities from a third party with the defaulting seller to make good.
- In poker it signifies the up-front payment required to participate in a given game or tournament.
- In management and decision making, buy-in (as a verb or noun) signifies the commitment of interested or affected parties to a decision (often called stakeholders) to 'buy in' to the decision, that is, to agree to give it support, often by having been involved in its formulation.
Securities market use
On the English stock exchange, 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," prevails when a purchaser fails to take up his securities.
The practise 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) = x Settlement date (SD)= x + 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) = x Settlement date (SD) = x + 3 trading days / example: TD: Thursday 23 feb 06 / SD= 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(SGX) mainboard and Sesdaq.
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 :
- Borrow the share and proceed to sell a stock.
- Buy a put warrant
- Short a CFD.
- Sell a Single Stock Future (SSF) in the futures market.
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