What is a Failure to Deliver? Definition, Formula, and Example
A failure to deliver (FTD) occurs when a party in a securities trade fails to deliver the shares or cash by the standard settlement date, most often associated with short selling and tracked publicly by the SEC.
Failure to Deliver Definition
A failure to deliver (FTD) occurs when a party in a securities trade fails to deliver the shares (seller) or cash (buyer) by the standard settlement date. In US equity markets after the May 2024 transition, settlement is T+1, meaning shares must change hands one business day after the trade prints. FTDs are tracked publicly by the SEC and published twice monthly. The data is most often associated with short selling — particularly naked short selling, where shares are sold without first borrowing them — and feeds directly into the FINRA Threshold Securities List.
How Failures to Deliver Arise
Four primary causes:
1. Naked short sale — seller did not locate borrowable shares before selling
2. Failed locate — the borrow agreement fell through after the trade printed
3. Operational errors — wrong CUSIP, account issues, manual booking mistakes
4. Market-maker exemption — a narrower carveout under post-2008 Reg SHO that lets bona fide market makers fail temporarily while hedging
The SEC publishes aggregate FTD data twice per month with a ~2-week lag, listing every CUSIP with aggregate failures above 10,000 shares.
Regulation SHO Rule 204
Rule 204 of Reg SHO governs how clearing firms must resolve FTDs:
- Short sale FTDs: must be closed out by start of trading on T+3 (two settlement days after the original T+1)
- Long sale FTDs: must be closed out by start of trading on T+5
- Threshold list: persistent FTDs lasting 5+ consecutive settlement days and exceeding 0.5% of shares outstanding land the ticker on the FINRA Threshold Securities List, which restricts further short selling without a pre-borrow
Worked Example
GME FTDs in January 2021 spiked to over 2 million shares on January 26, the trading day before retail-driven buying accelerated the squeeze. Cumulative FTDs across the prior two weeks exceeded 6 million shares against a then-public float of roughly 27 million — well above the Threshold List trigger. GME closed at $147.98 on January 26 and traded to $483 intraday on January 28.
By late February 2021, GME FTDs had collapsed to under 100,000 shares per day as forced buy-ins under Rule 204, brokerage borrow requirements, and short covering combined to settle the outstanding fails. The FTD spike preceded the violent rerating; subsequent academic research found a statistically significant correlation between FTD pressure and short-squeeze return amplitude on small-float names.
When Traders Use FTD Data
Three practical applications:
1. Squeeze identification — pairing high FTD prints with high short interest and a low float identifies forced-cover candidates ahead of catalysts
2. Validation of short data — short interest is self-reported by brokers semi-monthly; FTDs are an independent hard-delivery measure that corroborates or contradicts the SI report
3. Threshold list monitoring — tickers approaching threshold-list thresholds face borrow restrictions, raising borrow fees and tightening squeeze mechanics
Limitations and Common Misconceptions
- FTD ≠ naked short selling. Most failures are operational, not malicious
- Two-week reporting lag means published data is stale by the time you see it
- Aggregate FTDs include long-side fails — not all the failure pressure is from shorts
- Magnitude is small relative to total daily volume on most large-cap tickers; FTDs are only actionable on low-float small caps
- A high FTD print on its own is not a buy signal; it must coincide with float exhaustion, short interest, and a catalyst