The Short Version
'Bad delivery' refers to a delivery of securities that fails to meet an exchange's technical requirements for a valid, transferable delivery — most relevant to physical (paper) share certificates, though the concept still applies conceptually to any older physical holdings. Common causes include mismatched signatures on the transfer deed, torn or mutilated certificates, certificate/folio numbers that don't match the transfer documents, or certificates not conforming to standard market lots. A bad delivery is identified and rejected by the receiving broker before it's ever lodged with the company, distinguishing it from a 'company objection' (covered next), which is raised by the company/registrar after lodgement.
Explain It Like I'm 10
Imagine mailing someone a signed check, but the signature on the check doesn't match the name on the envelope, or the check itself arrived torn in half. The bank would reject it on the spot as unusable — not because the money itself isn't real, but because the paperwork doesn't meet basic standards for processing. A 'bad delivery' of shares is the exact same idea applied to physical share certificates: the underlying ownership might be perfectly genuine, but the specific documents handed over don't meet the standard required to actually process the transfer.
Step-by-Step Example
- 1 A seller delivers a physical share certificate along with a signed transfer deed to complete an old-style trade.
- 2 The receiving broker inspects the documents and notices the signature on the transfer deed doesn't match the name on the certificate.
- 3 The receiving broker rejects the delivery on the spot as 'bad delivery,' before ever forwarding it to the company.
- 4 The original seller is notified and must obtain a corrected, properly signed transfer deed and re-deliver within the specified rectification window.
- 5 Only once a fully compliant delivery is provided does the transfer process move forward toward the company for registration.
Quick Recap
- ✓ Bad delivery is caught between the delivering and receiving brokers — before the paperwork ever reaches the issuing company.
- ✓ The delivering party is required to rectify the defect and re-deliver good documents within a specified window.
- ✓ Dematerialization has made bad delivery far rarer in practice, since electronic shares have no physical certificate to be torn, mismatched, or forged.
- ✓ It remains a relevant concept for any transfer still involving old physical share certificates.