Buy-In: What It Means and How Share Repurchases Work

What is a buy-in?

A buy-in most commonly refers to the forced repurchase of securities by a buyer when the original seller fails to deliver shares as promised. It can also mean:

• An agreement to purchase shares or a stake in a company.
• Informally, the psychological act of accepting or supporting an idea or plan (e.g., getting “buy-in” from stakeholders).

How a buy-in occurs

When a seller does not deliver securities on the agreed settlement date, the buyer can initiate a buy-in. The usual steps are:

1. The buyer notifies exchange officials or their broker of the failed delivery.
2. The exchange or broker notifies the seller and gives an opportunity to deliver.
3. If the seller does not remedy the failure, the buyer (or the exchange/broker on the buyer’s behalf) purchases the shares from another seller.
4. The original seller is typically required to make up any price difference between the original trade and the replacement purchase.

If the seller still does not respond, the broker may purchase and deliver the securities to the client and then seek reimbursement from the original seller at a pre‑determined price.

Settlement timing and why buy-ins matter

Most securities trades settle on a T+2 basis (trade date plus two business days). Some settle T+1 or same-day for cash trades. When delivery fails on the scheduled settlement date, a buy-in can be triggered to ensure the buyer receives the securities.

Buy-in vs. forced buy-in

A forced buy-in is a specific type of buy-in tied to short selling:

• Buy-in (standard): Repurchasing to cover a failed delivery to a long buyer.
• Forced buy-in: Occurs when a short seller’s lender recalls lent shares or the broker can no longer borrow shares. The broker or exchange repurchases shares to close the short position, sometimes without prior notice to the account holder.

Forced buy-ins protect lenders and the market by closing uncovered short positions, and they are the opposite of forced selling or forced liquidation.

Practical implications for investors

• Long buyers: Monitor settlement confirmations and work with your broker if deliveries fail to avoid being caught in a buy-in process.
• Short sellers: Be aware of recall risk and the potential for forced buy-ins, which can close positions at unfavorable prices.
• Brokers and exchanges: Enforce delivery rules to maintain orderly markets and may pass costs or price differences to the party at fault.

Summary

A buy-in enforces delivery when a seller fails to provide securities—either by allowing the buyer to repurchase from another seller or by forcing a broker to intervene. Understanding settlement timelines (T+2, T+1, or same day) and the differences between standard and forced buy-ins helps investors manage settlement risk and short-position exposures.