Final answer:
A notice of closeout is an official notification a FINRA member firm sends when resolving unsettled securities transactions with another member, by buying in or selling out the required positions to close the fail to deliver or receive status.
Step-by-step explanation:
The notice of closeout refers to the official notification process that a Financial Industry Regulatory Authority (FINRA) member firm must follow when buying in or selling out securities to close a fail to deliver or fail to receive position with another member. This procedure is designed to resolve the situation when a transaction has not been settled in a timely manner, as required by the securities regulation standards established by FINRA.
When a firm fails to deliver securities on the settlement date, the buying firm may procure the securities elsewhere and send a notice of closeout to the defaulting member, thereby informing them of the buy-in. Similarly, if a firm fails to receive the securities it purchased, it could sell out the position and send a closeout notice to the member that failed to deliver.
This ensures that the markets operate smoothly and transactions are completed efficiently, thus maintaining the integrity of the securities industry overall.