What happens if a security is not delivered by the agreed-upon settlement date?

• A. The broker must cancel the transaction entirely
• B. The broker can purchase the security from another source
• C. The client will face a penalty charge but retains the contract
• D. The transaction is automatically extended without cost

Answer: (B)

The situation of a security not being delivered by the agreed-upon settlement date leads to specific actions that a broker can take to protect their client's interests and to fulfill their obligations. When a broker opts to purchase the security from another source, they are essentially taking steps to meet the settlement requirement. This allows the transaction to complete and ensures that the client receives the security as intended, even if the original seller fails to deliver on time.

This choice reflects the broker's responsibility to ensure that trades are settled appropriately and provides a mechanism for resolution when delays occur. It allows the broker to manage any issues that arise without canceling the transaction, imposing automatic penalties, or extending the settlement period without cost.

The other options suggest actions that are not commonly practiced in this situation. Canceling the transaction outright would not fulfill the client's needs. Penalty charges on clients, while theoretically possible depending on the circumstances, are not the primary action taken by the broker in this case. Similarly, automatically extending the transaction without cost does not address the underlying issue of delivery failure and is typically not the standard practice. By focusing on acquiring the securities from an alternative source, the correct response emphasizes efficiency and client service in trading operations.