What it is:
Good delivery occurs when all the requirements for transferring title to a security from the seller to the buyer have been met.
How it works (Example):
For example, let's assume John owns 100 shares of Company XYZ. His father gave him the shares when he was a boy, and his father had them registered in John's name (meaning John has a physical stock certificate). John needs money and wants to sell the shares to his cousin, Sue. He contacts a broker and arranges the transaction.
However, the transfer agent in the transaction discovers that John's stock certificate has a transfer restriction on it. Therefore, the shares are not good delivery and the transaction cannot be settled. John keeps his shares and is unable to sell them to Sue.
Why it Matters:
Good delivery is a prerequisite to settling a securities transaction. Though the previous example involves a transfer restriction, other things can prevent good delivery, such as forgetting to attach required legal documents in a transaction, missing wire transfer deadlines, or leaving out an endorsement. Additionally, good delivery requirements don’t apply only to stock transfers. Lenders, vendors, and other parties to transactions usually have requirements for good delivery.