Settlement Failure After an Onward Sale
You are the risk officer at a PSX broker, Broker A. On Monday a client bought 200,000 shares of a listed cement company at PKR 85, for T+2 settlement. The client simultaneously contracted to sell the same shares at PKR 88 through Broker B, also for T+2, expecting a clean turnaround. On settlement day Broker A is notified that the selling member on the original purchase has failed to deliver. NCCPL applies its default procedures and a buy-in is executed at PKR 92. Broker B’s purchase for your client cannot be settled, and the client faces a failed sale. The client demands that Broker A pay PKR 600,000 of lost profit plus the PKR 800,000 buy-in difference, and threatens to complain to SECP. Your compliance head asks for a position before the client meeting.
1. Explain the settlement chain and identify which losses Broker A is, and is not, obliged to cover. Distinguish replacement cost from consequential loss.
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The trade chain is client–Broker A–selling member–NCCPL–Broker B–client. Broker A’s immediate obligation is to follow NCCPL’s default and close-out procedures, not to invent a private settlement. The buy-in at PKR 92 is a replacement-cost event: it reflects the cost of obtaining the shares after the selling member failed. That cost is dealt with through the NCCPL default process and any available settlement guarantee or default fund, subject to the applicable rules and the defaulting member’s resources.
The client’s PKR 600,000 lost profit on the onward sale is consequential loss. Unless Broker A separately guaranteed the onward sale, was negligent, or misrepresented settlement certainty, that profit is generally not covered by the settlement guarantee. Broker A should not admit liability at the meeting. It should explain the difference between the failed delivery, the replacement cost, and the client’s separate contract with Broker B, and reserve its position pending NCCPL’s default notification.
2. Set out immediate operational and communication steps, including what you would document and what you would not promise.
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Immediately: preserve the order tickets, confirmations, settlement instructions, NCCPL notices, buy-in records, and all client communications. Confirm with NCCPL and Broker B whether the onward sale has been closed out, bought in, or remains open, and obtain written statements. Do not execute a compensating trade in the client’s account without written instruction. Escalate to compliance and legal before the meeting.
In the meeting, explain the timeline and the default process in plain language. State what is known, what is still being determined, and the next update time. Do not promise reimbursement of lost profit or the full PKR 800,000 difference. Offer to help the client document a claim through the proper channel. Follow up in writing, separating replacement cost from consequential loss. If the client complains to SECP, cooperate and keep the correspondence factual.