Know the Requirements for Good Delivery for the Series 7 Exam

By Steven M. Rice

In the securities industry, good delivery doesn’t mean “in 30 minutes or it’s free” (even the pizza delivery places don’t promise that anymore). To constitute good delivery of certificates, the securities have to be in a certain form. The transfer agent is responsible for good delivery. Here are the general requirements:

  • They must be in good physical condition (not mutilated).

  • They must be endorsed.

  • The exact number of shares or bonds must be delivered.

  • The correct denomination of the certificates must be delivered.

And here are the requirements for good delivery of specific securities:

  • Bearer (coupon) bonds: These unregistered bonds must be in $1,000 or $5,000 denominations only.

    For a bearer bond to be in good delivery form, it must be delivered with all unpaid coupons (representing interest payments) attached.

  • Registered bonds: These bonds must be in multiples of $1,000 par value with a maximum par value of $100,000.

  • Stock: Because the most easily traded unit of stock is 100 shares (a round lot), stock certificates must be in denominations of one of the following:

    • Multiples of 100 shares — 100, 200, 300, 400, and so on

    • Divisors of 100 shares — 1, 2, 4, 5, 10, 20, 25, 50, or 100

    • Units that add up to 100 shares — 40 shares + 60 shares, 91 + 9, 80 + 15 + 5, and so on

Odd lot trades (trades of less than 100 shares) or odd lot portions of orders are exempt from the good delivery rule.

The following question tests your ability to answer a good delivery question.

  1. All of the following are considered good delivery for a 560-share order EXCEPT

    (A) two 200-share certificates, one 100-share certificate, and one 60-share certificate

    (B) 56 10-share certificates

    (C) six 60-share certificates, five 30-share certificates, and five 10-share certificates

    (D) one 400-share certificate and two 80-share certificates

The correct answer is Choice (D). Choice (A) is good because the 200-share certificates and 100-share certificates are multiples of 100 shares, and the 60-share trade (odd lot portion) is exempt. Choice (B) is good because 10 is a divisor of 100 (it goes into 100 evenly). Choice (C) is good because 60 + 30 + 10 adds up to 100, and the extra 60-share certificate is exempt because it’s an odd-lot portion. However, Choice (D) is bad delivery because even though the 400-share certificate is okay, the two 80-share certificates aren’t good because they don’t add up to 100.

Always look at the shares first to determine whether you have good delivery.A lot of students look at the number of certificates before they check the number of shares per certificate. The Series 7 designers want to know more about your understanding of concepts than your multiplication and addition skills, so you probably won’t have to figure out the total number of shares in each answer choice — they should all add up to the number of shares in the order (in the preceding example, 560).