Trading Skills

good delivery

What is Premium Delivery?

Good delivery is the unhindered transfer of title to the security from the seller to the buyer provided all necessary requirements are met. This used to be a rather complicated process, although today, with electronic exchanges facilitating the digital transfer and clearing of many securities, good delivery has become automated and often more straightforward.

key takeaways

  • Good delivery is the unhindered transfer of title to the security from the seller to the buyer provided all necessary requirements are met.
  • The criteria for what constitutes a good delivery vary by market or security, but it is a prerequisite for settling the trade.
  • Before the advent of computers, a good delivery consisted of a physical inspection by a transfer agent to ensure that certain endorsements were certified and met registration requirements for the buyer to accept delivery.

Learn about good delivery

Good delivery occurs when the transfer of the security is not hindered by restrictions or other issues that prevent its physical or virtual delivery to the buyer. These days, good delivery is often determined by computers. In the past, however, securities were inspected by transfer agents to ensure individual paper certificates were authenticated and met registration requirements for buyer pickup.

To be eligible for good delivery, the stock certificate must be in good physical condition, endorsed by the seller or the seller’s agent, and delivered in the correct denomination that matches the exact number of shares to be transferred.

Historically, good delivery of securities from seller to buyer has been a problem in financial markets. The buyer needs to be sure that they will receive the correct stock certificates, which are indeed genuine, and that they will actually get physical delivery after paying the seller. Regulated stock exchanges and clearing houses have emerged as trusted third parties to facilitate transactions and standardize the requirements for good delivery.

Today, with the advent of electronic trading, computerized settlement and clearing facilities, these problems are largely a thing of the past. However, the existence of share transfer restrictions can still hurt the chances of a good delivery of the shares.

For example, insider shares issued directly to company executives may have certain restrictions that do not allow them to be sold outside the company without first selling the shares to existing shareholders. Rule 144 may allow the sale of certain restricted securities if certain conditions are met.

good delivery standard

The criteria for what constitutes a good delivery vary by market or security, but it is a prerequisite for settling the trade. Many stock markets today allow for easy trading on fractional or even fractional shares. However, for stock markets that execute full lot trades, there may be restrictions on how these lot sizes can be delivered. Since the traditionally most frequently traded unit of stock is 100 shares (one lot), stock certificates should be denominated in one of the following:

  • Multiples of 100 shares – 100, 200, 300, etc.
  • Divisor of 100 shares – 1, 2, 4, 5, 10, 20, 25, 50 or 100
  • That adds up to units of 100 shares – 40 + 60, 91 + 9, 80 + 15 + 5, etc.

For the bond market, multiples of $1,000 face value (sometimes $5,000) should be used for good delivery, sometimes up to $100,000 face value. In order for an unregistered bearer bond to be in good delivery form, it must be delivered with all unpaid coupons still attached.

For commodity markets, good delivery standards are prescribed by exchanges and explicitly incorporated into futures contract specifications. For example, the London Bullion Market Association (LBMA) defines good delivery of physical gold as:

  • fineness: At least 995.0 parts/thousand pure gold
  • Fraction: Serial Number, Refinery Logo, Condition, Year of Manufacture
  • weight: 350–430 troy ounces (11–13 kg)
  • Recommended size: Length (Top): 250mm +/- 40mm, Width (Top): 70mm +/- 15mm, Height: 35mm +/- 10mm. For length and width, slopes from 5º to 25º are allowed (called undercuts)

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