| Short delivery in the stock market refers to a scenario where a seller fails to deliver the committed shares during settlement. This usually happens if a seller unintentionally sells shares which they do not possess or if a particular stock faces liquidity issues. |
| How it Unfolds: |
| Identification and Notification: On T+1 day (a day after the transaction), TradeJini identifies short deliveries and notifies the concerned clients. |
| Auction by Exchange: On T+1 day, an auction is conducted by exchange to secure shares from other potential sellers in the market. |
| Delivery to the Buyer: Shares obtained from the auction are delivered to buyers by T+2 day. Buyers can view these shares in their Demat account by T+3. |
| Penalty on Defaulting Sellers: Sellers unable to deliver the shares face penalties. The penalty is the difference between the auction price and the original close-out rate. If auction rates are lower than the close-out rates, then the difference between these two rates will be deducted from the seller’s account on T+2. |
| Cash Settlement: If shares are not available during the auction, exchange settles the transaction in cash. The settlement amount is determined by the close-out rate, which is either 20% above or below the closing rate. This amount is credited to the buyer and debited from the seller by T+2. |
| Impact on Buyers: |
| Delayed Delivery: Buyers may experience a delay in receiving shares or might receive a cash settlement. |
| Missing Corporate Actions: During this period, buyers might miss out on corporate actions like dividends declared by the company. |
| Impact on Sellers: |
| Penalty Charges: Sellers face penalties if they cannot deliver the committed shares. |
| In essence, while buyers may face inconvenience, they do not suffer financial losses. Sellers, however, may encounter penalties and other repercussions. |
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