Good delivery refers to the seamless transfer of ownership of a security from a seller to a buyer, ensuring all necessary requirements have been met. With advancements in electronic exchanges, the process has become automated and much more straightforward.
Key Points to Remember
- Good delivery ensures the unhindered transfer of ownership of a security between parties, meeting all required criteria.
- Criteria for good delivery vary by market and security type but are essential for settling transactions.
- Historically, good delivery involved physical inspections by transfer agents for endorsements and registration authenticity but is now largely automated.
Understanding Good Delivery
Good delivery ensures a security’s transfer is free of restrictions or obstacles that would prevent its physical or digital transfer to the buyer. In the past, securities were inspected by transfer agents to verify the authenticity and registration of paper certificates. Today, modern systems use electronic methods to ensure good delivery criteria are met efficiently.
Historical Context
Before electronic systems, the buyer needed assurance that the correct stock certificates were authentic and would be delivered after payment. Trusted third parties like stock exchanges and clearing houses standardized good delivery requirements.
Modern Challenges
Although many challenges have been mitigated with electronic exchanges, share transfer restrictions can still impede good delivery. For instance, insider stock might have restrictions requiring it to be offered to existing shareholders before being sold externally. Rule 144 allows the sale of some restricted securities under certain conditions.
Good Delivery Criteria
Good delivery criteria differ depending on markets or security types but are pivotal for transaction settlements.
Stock Markets
Many stock markets now enable trading in odd lots or fractional shares. However, in markets enforcing round lots, often represented by 100 shares, delivery must comply with specified denominations. These include:
- Multiples of 100 shares: 100, 200, 300, etc.
- Divisors of 100 shares: 1, 2, 4, 5, 10, 20, 25, 50, or 100
- Units totaling 100 shares: 40 + 60, 91 + 9, 80 + 15 + 5, etc.
Bond Markets
In bond markets, delivery should be in multiples of $1,000 par value, sometimes $5,000, with certain markets capping at $100,000. Unregistered bearer bonds must be delivered with all unpaid coupons attached for good delivery.
Commodities Markets
Commodities markets adhere to explicit criteria defined by exchanges. For example, the London Bullion Market Association (LBMA) stipulates good delivery for physical gold as follows:
- Fineness: Minimum of 995.0 parts per thousand fine gold
- Marks: Serial number, refiner’s hallmark, fineness, and year of manufacture
- Weight: 350-430 troy ounces (11-13 kg)
- Dimensions: Length (top): 250 mm +/- 40 mm, width (top): 70 mm +/- 15 mm, height: 35 mm +/- 10 mm, with an acceptable slope from 5º to 25º for the length and width
Related Terms: clearing, stock certificates, round lot, odd lots, futures contracts, par value.
References
- U.S. Securities and Exchange Commission. “Rule 144: Selling Restricted and Control Securities”.
- The London Bullion Market Association. “Good Delivery List”, Pages 10 and 11.
