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Simple English definitions for legal terms
fail position
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A quick definition of fail position:
Fail position: When brokers trade securities with each other, they need to make sure they have enough securities to fulfill their obligations. A fail position happens when a broker owes more securities to another broker than it has coming in from other firms. This can cause problems and delays in settling trades.
A more thorough explanation:
A fail position occurs when a broker owes more securities to another broker than it has received from other firms, after all transactions in a security have been settled.
Broker A buys 100 shares of XYZ stock from Broker B, but Broker B fails to deliver the shares. This creates a fail position for Broker A, as it has paid for the shares but has not received them.
Another example could be if Broker C sells 200 shares of ABC stock to Broker D, but fails to deliver the shares. This creates a fail position for Broker D, as it has paid for the shares but has not received them.
These examples illustrate how a fail position can occur when one broker fails to deliver the securities that were bought by another broker. This can cause problems in the settlement process and may result in financial losses for the affected parties.