Buy-In
A buy-in in the financial markets is an occurrence in which an investor is forced to repurchase shares of security because the seller of the original shares did not deliver the securities in a timely fashion or did not deliver them at all. A buy-in in the financial markets is an occurrence in which an investor is forced to repurchase shares of security because the seller of the original shares did not deliver the securities in a timely fashion or did not deliver them at all. The difference between a traditional and forced buy-in is that in a forced buy-in, shares are repurchased to cover an open short position. In a forced buy-in, shares are repurchased to cover an open short position, as opposed to a traditional buy-in. A buy-in is a reference to the repurchasing of shares by an investor because the original seller failed to deliver the shares as promised.
What Is a Buy-In?
A buy-in in the financial markets is an occurrence in which an investor is forced to repurchase shares of security because the seller of the original shares did not deliver the securities in a timely fashion or did not deliver them at all.
A buy-in can also be a reference to a person or entity buying shares or a stake in a company or other holding. In psychological terms, the buy-in is the process of someone getting on board with an idea or concept that is not their own but nonetheless appeals to them.
Understanding Buy-Ins
Those who fail to deliver the securities as promised are generally notified with a buy-in notice. A buyer will send notice to exchange officials. As a result, officials will usually notify the seller of their delivery failure. The stock exchange (e.g., NASDAQ or NYSE) supports the investor in buying the stocks a second time from another seller. Typically, the original seller must make up any price difference between the original price of the stock and the second purchase price of the stock by the buyer.
Failure to answer the buy-in notice results in a broker buying the securities and delivering them on the client’s behalf. The client is then required to 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 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. In some cases, an account holder might not be notified before a forced buy-in. A forced buy-in is the opposite of forced selling or forced liquidation.
Settlement of Securities
Securities transactions typically settle in T+2 business days, following the transaction (T=0), which applies to the majority of securities, such as stocks and corporate bonds. Some transactions have a settlement of T+1 business day while others can even settle on the same day as the trade date. Same-day transactions are called cash trades.
In the above transactions, the trades will settle according to their respective settlement dates. However, if the securities fail to be delivered, a buy-in will occur.
Related terms:
Aged Fail and Example
An aged fail is a transaction between two broker-dealers that has not been settled within 30 days of the trade date. read more
Cash Trading
Cash trading requires that all transactions be paid for by funds available in the account at the time of settlement. read more
Derivative
A derivative is a securitized contract whose value is dependent upon one or more underlying assets. Its price is determined by fluctuations in that asset. read more
Failure To Deliver (FTD)
Failure to deliver (FTD) refers to a situation where one party in a transaction does not meet their obligation to either pay for or supply an asset. read more
Forced Selling (Forced Liquidation)
Forced selling or forced liquidation usually entails involuntarily selling assets or securities for liquidity in the event of unforeseen situations. read more
Investor
Any person who commits capital with the expectation of financial returns is an investor. A wide variety of investment vehicles exist including (but not limited to) stocks, bonds, commodities, mutual funds, exchange-traded funds, options, futures, foreign exchange, gold, silver, and real estate. read more
Long Position
A long position conveys bullish intent as an investor will purchase the security with the hope that it will increase in value. read more