What Is a Buy-In?
Let me explain what a buy-in means in the financial markets. It's when an investor has to repurchase shares of a security because the original seller didn't deliver them on time or at all.
You might also hear 'buy-in' used for when a person or entity buys shares or a stake in a company or other holding. And outside of finance, in psychological terms, buy-in is about someone getting on board with an idea or concept that isn't theirs but appeals to them anyway.
Key Takeaways
- A buy-in refers to repurchasing shares by an investor because the original seller failed to deliver as promised.
- It can also be an agreement to purchase shares of something, sometimes to buy a stake in a company with other owners.
- Beyond financial markets, a buy-in is the act of agreeing with or accepting terms offered, like in a job or organization.
- In a forced buy-in, shares are repurchased to cover an open short position, unlike a traditional buy-in.
Understanding Buy-Ins
If someone fails to deliver securities as promised, they usually get a buy-in notice. The buyer sends this notice to exchange officials, who then notify the seller about the delivery failure. The stock exchange, like NASDAQ or NYSE, helps the investor buy the stocks again from another seller.
The original seller has to cover any price difference between the original stock price and the new purchase price. If the seller ignores the buy-in notice, a broker will buy the securities and deliver them on the client's behalf. Then, the client must pay the broker back at a pre-determined price.
The Difference Between a Buy-In and a Forced Buy-In
Here's the key difference: in a forced buy-in, shares get repurchased to cover an open short position. This happens in a short seller's account when the original lender recalls the shares, or when the broker can't borrow shares for the shorted position anymore.
Sometimes, the account holder isn't even notified before a forced buy-in occurs. Remember, a forced buy-in is the opposite of forced selling or forced liquidation.
Settlement of Securities
Securities transactions usually settle in T+2 business days after the transaction date (where T=0). This applies to most securities, such as stocks and corporate bonds. Some settle in T+1 business day, and others even on the same day as the trade—these are called cash trades.
In all these cases, trades settle on their respective dates. But if the securities aren't delivered, that's when a buy-in comes into play.
Other articles for you
The Dark Cloud Cover is a bearish reversal candlestick pattern indicating a potential shift from upward to downward price momentum.
Economic value represents the subjective benefit a person derives from a good or service, distinct from its market price.
A frequency distribution is a statistical tool that shows how often values occur within specific intervals in a dataset.
The Kijun Line is a key component of the Ichimoku Cloud indicator that calculates the midpoint of highs and lows over 26 periods to generate trading signals and assess momentum.
Consumer discretionary refers to non-essential goods and services that people buy when they have extra income, serving as an economic indicator of growth or contraction.
Fibonacci extensions help traders predict profit targets and potential reversal points based on mathematical ratios after a price pullback.
The Jobseeker's Allowance (JSA) is a UK benefit for unemployed people actively seeking work to help with living costs.
Hedging is an investment strategy that reduces risk by taking offsetting positions in related assets.
The Office of Foreign Assets Control (OFAC) enforces U.S
Mobile wallets are apps that store payment information on devices for secure, convenient transactions.