DEFINITION of Good Delivery
Good delivery occurs when a security's transfer is unhindered by restrictions or other issues that would prevent its physical or virtual delivery of securities, such as a stock certificate, to the buyer. Good delivery today is most often determined behind a computer screen, but in the past securities were inspected by a transfer agent where individual paper certificates were authenticated and may have required certain endorsements and registration requirements that had to be met in order for the buyer to receive the transfer.
Depending on the particular market or type of security, the criteria for making good delivery vary. To constitute good delivery of stock certificates, they must conform to a certain standard: They must be in good physical condition (i.e. the should not be mutilated); they must be endorsed by the seller or seller's agent; the exact number of shares executed must be delivered; and the correct denomination of the certificates must be delivered.
Today, with electronic exchanges and digital transfer and clearing of many securities, issues of good delivery have become automated and routine.
BREAKING DOWN Good Delivery
Good delivery of securities from a seller to a buyer had been an issue historically with regard to financial markets and trading. How could a buyer know for sure that he received the correct stock certificates, that the certificates were indeed authentic, and that they actually make it into their hands after paying the seller for them. Regulated stock exchanges and clearing houses sprang up as a trusted third party to facilitate trading and standardize the requirements for making good delivery.
Today, with electronic exchanges and computerized settlement and clearing facilities, these issues are largely behind us. However, still the presence of share transfer restrictions can hurt the possibility of a stock's good delivery. For example, insider stock, such as that issued directly to a company's executives may have certain restrictions that disallow sale outside the company without first having offered the shares for sale to existing shareholders. Rule 144 can allow for the sale of some restricted securities if they meet certain conditions.
Good Delivery Criteria
The criteria for what constitutes good delivery varies from market to market or based on the type of security traded.
Many stock markets today allow for easy trading in odd lots or even fractional shares. But. for stock markets that enforce round lots, there may be restrictions on how to deliver those lots. Because the most commonly traded unit of stock has traditionally been 100 shares (a round lot), stock certificates should be denominated uin one of the following: Multiples of 100 shares — 100, 200, 300, etc.; divisors of 100 shares — 1, 2, 4, 5, 10, 20, 25, 50, or 100; or units that add up to 100 shares — 40 shares + 60 shares, 91 + 9, 80 + 15 + 5, etc.
For bond markets, good delivery should be made using multiples of $1,000 (or sometimes $5,000) par value, sometimes with a maximum par value of $100,000. For an unregistered bearer bond to be in good delivery form, it must be delivered with all unpaid coupons still attached.
For commodities markets, good delivery criteria are spelled out by the exchange and incorporated explicitly into futures contracts specifications. For example, the London Bullion Market Association (LBMA) specified good deliver in physical gold as:
Fineness: minimum of 995.0 parts per thousand fine gold
Marks: serial number, refiner's hallmark, fineness, year of manufacture
Gold content: 350–430 troy ounces (11–13 kg)
Length (top): 210–290 mm (~8.3–11.4 inches)
Width (top): 55–85 mm (~2.2–3.3 inches)
Height: 25–45 mm (~1–1.8 inches)