Buy-In

A buy-in is when an investor is forced to repurchase shares because the seller did not deliver securities in a timely fashion or did not deliver them at all.

Those who fail to deliver the securities are generally notified with a buy-in notice. A buyer will send notice to exchange officials. As a result, officials will usually notify the seller of their delivery failure. The exchange (e.g., NASDAQ or NYSE) supports the investor in buying the stocks a second time from another seller. Typically, the original seller must make up any price difference between the original price and the second purchase price of the stock by the buyer.

Failure to answer the buy-in notice results in a broker buying the securities and delivering them on the client’s behalf. The client is required to pay back the broker at a pre-determined price.

The difference between a traditional and forced buy-in is that in a forced buy-in, shares are repurchased to cover an open short position. A forced buy-in occurs in a short seller’s account when the original lender of the shares recalls them. This can also occur when the broker is no longer able to borrow shares for the shorted position. An account holder might not be notified before a forced buy-in. A forced buy-in is the opposite of forced selling or forced liquidation.

Securities transactions typically settle T+2 business days, following the transaction (T=0), which applies to the majority of securities, such as stocks and corporate bonds. Some transactions, such as exchanges of U.S. government securities have a settlement of T+1 business day while others can even settle on the same day as the trade date. Same-day transactions are called cash trades.

In the above transactions, the trades will settle according to their respective settlement dates. However, if the securities fail to be delivered, a buy-in will occur.