What’s good delivery?
A good delivery is the smooth transfer of security ownership from seller to buyer, meeting all relevant standards. Electronic exchanges have simplified the process of delivering securities, which was formerly difficult.
Understanding Good Delivery
Good delivery entails a security transfer without limits or obstacles hindering its physical or virtual delivery to the buyer. Computers decided on good delivery today. In the past, transfer agents were required to validate paper certificates and meet registration requirements before delivering securities to buyers.
The seller’s or agent’s endorsement, the correct denomination, and the number of shares transferred must all be present on stock certificates in acceptable physical condition.
Good securities distribution from seller to buyer was a problem in the financial markets. The buyer required assurance of receiving valid stock certificates and getting physical delivery after paying the vendor. Regulations establish stock exchanges and clearing institutions as trustworthy third parties for trading and standardize delivery criteria.
Electronic exchanges, automated settlement, and clearing facilities have eliminated these concerns. However, share transfer limitations might still hamper stock delivery.
For instance, insider stock granted directly to a business’s executives may be restricted from being sold outside the company without first being offered to current shareholders. In certain instances, Rule 144 allows the sale of restricted securities.
Good Delivery Criteria
Good delivery is needed for closing a transaction; however, market and security standards vary. Today, several stock exchanges enable trading in odd lots or fractional shares. Stock exchanges that use round lots may have delivery constraints. Denominating stock certificates in one of the following is appropriate, as the most commonly traded unit is 100 shares (a round lot):
- Multiples of 100 shares—200, 300, etc.
- Divisors of 100 shares—1, 2, 4, 5, 10, 20, 25, 50, or 100
- Units that equal 100 shares—40 + 60, 91 + 9, 80 + 15 + 5, etc.
To ensure reliable bond market delivery, use multiples of $1,000 (or $5,000) par value, with a maximum of $100,000. An unregistered bearer bond must have all unpaid coupons attached to ensure a good delivery.
In commodity markets, exchanges outline delivery conditions and include them in futures contract specifications. The London Bullion Market Association (LBMA) defined physical gold delivery as:
- Minimum 995.0 ppm fine gold
- Serial number, refiner’s hallmark, purity, year made
- 350–430 oz (11–13 lb)
- Recommended dimensions: 250 mm +/- 40 mm length, 70 mm +/- 15 mm width, 35 mm +/- 10 mm height. For length and breadth, the undercut, or slope can range from 5º to 25º.
Conclusion
- Good delivery is the smooth transfer of security ownership from seller to buyer, meeting all standards.
- Good delivery is needed for closing a transaction; however, market and security standards vary.
- Good delivery before computers required transfer agents to physically examine endorsements and registration requirements before the buyer could accept delivery.
