What is Good Delivery?
Good delivery refers to the unhindered transfer of ownership of a security from a seller to a buyer, with all necessary requirements having been met.
- Good delivery refers to the unhindered transfer of ownership of a security from a seller to a buyer, with all necessary requirements having been met.
- The criteria for what constitutes good delivery varies from market to market or from security to security, but it is a prerequisite to settling a transaction.
- Prior to the advent of computers, good delivery included physical inspections by transfer agents to ensure that certain endorsements were authenticated and registration requirements were met in order for the buyer to take the delivery.
Understanding Good Delivery
Good delivery occurs when a security's transfer is unimpeded by restrictions or other issues that would prevent its physical or virtual delivery, such as a stock certificate transfer, to the buyer. Nowadays, good delivery is, usually, determined by computers, but in the past, securities were inspected by a transfer agent where individual paper certificates, that may have required certain endorsements, were authenticated and registration requirements had to be met in order for the buyer to take the delivery.
For example, good delivery of stock certificates must conform to certain standards:
- 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.
- The correct denomination of the certificates must be delivered.
Today, with electronic exchanges that facilitate the digital transfer and clearing of many securities, good delivery has become automated and routine.
Historically, good delivery of securities from a seller to a buyer had been an issue in financial markets. The buyer needed to know for sure that they would receive the correct stock certificates, that the certificates were indeed authentic, and that they would actually get physical delivery after paying the seller for them. Regulated stock exchanges and clearing houses sprang up as trusted third parties to facilitate trading and standardize the requirements for making good delivery.
Today, with electronic exchanges, computerized settlement and clearing facilities, these issues are largely a thing of the past. However, the presence of share transfer restrictions can still 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 from security to security, but it is a prerequisite to settling a transaction. 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 in 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
- Units that add up to 100 shares—40 + 60, 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)
- Recommended dimensions: 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)