What is a '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.

BREAKING DOWN 'Buy-In'

Those who fail to deliver the securities are generally notified with a buy-in notice. A buyer will send notice to exchange officials. Following this, officials will usually notify the seller of their delivery failure. The exchange (e.g. NASDAQ or NYSE) supports the investor in buying his or her stocks a second time. The original seller in most cases must make up any price difference.

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

The Difference Between a Buy-in and a Forced Buy-In

The difference between a traditional and forced buy-in (the opposite of forced selling or forced liquidation) 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 given any notice prior to forced buy-in act.

Traditional Securities Settlement Versus Buy-In

Regular way securities transactions typically settle T+3 business days, following the transaction (T=0). These types of transactions cover the majority of securities, such as stocks and corporate bonds. Some transactions, such as exchanges of U.S. government securities, have a regular way settlement of T+1 business day. Furthermore, some transactions can even settle on the same day as the trade.

These types of exchanges are called cash trades. Exceptions to standard settlement rules include SEC Rule 15c6-1, which covers contracts for the sale for cash of securities, priced after 4:30pm ET on the date the securities are priced and sold to an underwriter, pursuant to a firm commitment. In addition, FINRA 2830 m (Prompt Payment for Investment Company Shares) stipulates that those who engage in direct retail transactions for investment company shares must transmit payments by the later of a.) the end of the third business day, following a receipt of a customer's order, or (b) the end of one business day, following the receipt of a customer's payment.

The above transactions will settle accordingly, provided the securities do not fail to be delivered, requiring a buy-in.

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