What Is Good Delivery?
Let me explain what good delivery means in the world of securities. It refers to the smooth transfer of ownership from a seller to a buyer, where all the necessary requirements are satisfied. This process used to be complicated, but with electronic exchanges handling digital transfers and clearing, it's now automated and much simpler for most securities.
Key Takeaways
You should know that good delivery is about that unhindered ownership transfer with everything in order. The exact criteria can vary depending on the market or the type of security, but it's always required to settle a trade. Before computers, transfer agents had to physically check certificates to verify endorsements and registration for the buyer to receive delivery.
Understanding Good Delivery
Good delivery happens when there's no restriction or issue blocking the transfer of a security, whether physical or virtual, to the buyer. Today, computers usually handle this determination. In the past, though, transfer agents inspected paper certificates to confirm authenticity and meet registration needs so the buyer could take possession.
Here's a quick fact: For stock certificates to qualify as good delivery, they need to be in good condition, properly endorsed by the seller or their agent, and in the exact denomination matching the shares being transferred.
Historically, ensuring good delivery was a big challenge in financial markets. Buyers had to be certain they'd get the right, authentic certificates and actual delivery after payment. That's why regulated exchanges and clearing houses emerged as trusted intermediaries to standardize these requirements and facilitate trading.
Now, with electronic systems for settlement and clearing, those old problems are mostly gone. But share transfer restrictions can still prevent good delivery. For instance, insider shares given to company executives might not be sellable outside the company without first offering them to existing shareholders. Rule 144 allows selling some restricted securities if specific conditions are met.
Good Delivery Criteria
The standards for good delivery differ across markets or securities, but they're essential for completing a transaction. Many stock markets now handle odd lots or fractional shares easily, but for those requiring round lots, delivery must follow certain rules. Since 100 shares is the traditional round lot, certificates should be in multiples of 100, divisors of 100, or combinations adding up to 100.
Examples of Stock Certificate Denominations
- 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.
Criteria for Bonds and Commodities
In bond markets, good delivery typically uses multiples of $1,000 or sometimes $5,000 par value, with a cap at $100,000 in some cases. For unregistered bearer bonds, they must include all unpaid coupons attached.
For commodities, exchanges define good delivery in futures contracts. Take the London Bullion Market Association's specs for physical gold: it must have a fineness of at least 995.0 parts per thousand, include marks like serial number, refiner's hallmark, fineness, and year, weigh 350–430 troy ounces, and meet recommended dimensions with allowed undercuts.
