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Dirty stock is a stock issue that lacks good delivery status due to irregularities in supporting documents. The transaction is stopped until the issues are resolved and the stock is given good delivery status. This process ensures consistent and ethical stock transactions.
Dirty stock is any type of stock issue that is not considered good delivery. When a stock is identified as dirty, the transaction is stopped while the status of the stock is evaluated. Any problems that are discovered must be resolved before dirty stock is given good delivery status. Only after the outstanding issues are corrected can the transaction be resumed and completed.
Dirty stock status occurs due to some irregularity in the supporting documents confirming the veracity of the stock. Before ownership of the shares can be transferred from the current holder to the new owner, it is necessary to ensure that all endorsements and other legal documentation are in order. Checking the status of these types of documents is a standard process in any stock transaction.
When it is discovered that something is wrong with the transfer documents or endorsements, the progress of the transaction stops. At this point, the stock is identified as dirty and the process of obtaining the required documents or endorsements begins. Once all documentation is corrected, modified or added, the status of the transaction is reviewed. If the review results indicate that there are no remaining stock issues, the dirty stock status is changed to a good delivery status and the transaction continues to completion.
The concept of dirty stock is a means of ensuring that stock transactions are conducted in a consistent manner and that the opportunity for illegal or unethical sales to occur is minimized. Because good delivery status requires all documentation and endorsements to be verified and deemed to be in order, stock with questionable pedigrees is extremely difficult to pass through today. As a result of this dirty stock procedure, buyers are somewhat protected from losing a large amount of money due to stock purchases.
Often the incidence of dirty stock has nothing to do with an overt attempt to defraud anyone. It is much more likely that the simple omission of some supporting documents or possibly incorrect wording or information has crept into the documentation. These types of issues can usually be resolved in a very short time, allowing dirty stock to get a good delivery rating and allowing the transaction to proceed.
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