What does short delivery mean and how does it impact me?
Short delivery occurs when a seller fails to deliver the promised shares within the expected settlement cycle. This situation typically arises when the seller sells shares they don’t possess or when the stock has low liquidity.
Sequence of events during short delivery
- Identification and Notification (T+1):
The exchange flags the shortfall and notifies both the buyer and the defaulting seller. - Auction Process (T+1):
The exchange conducts an auction to acquire the short-delivered shares from other sellers.
Auction price can vary up to ±20% from the stock’s closing price on the trade day. - Delivery to Buyer (T+2 or T+3):
Shares bought in the auction are credited to the buyer’s Demat by T+3.
If no shares are available, the buyer receives a cash settlement. - Penalty for Seller (T+2):
If the auction price is higher than the seller’s original sale price, the difference is debited from the seller’s ledger.
If auction fails, a close-out is triggered, and the seller pays the cash settlement based on 20% markup over the closing price.
Impact on Buyers
- Delayed delivery: Shares may reflect in your Demat with a delay
- Corporate action ineligibility: You might miss benefits like dividends or bonuses if record dates fall before delivery
- No financial loss: Buyers are protected and compensated accordingly
Impact on Sellers
- Penalty charges: Debited for the auction difference or close-out
- Reputational and legal risks: Non-compliance may lead to regulatory or legal action
To avoid short delivery issues, always verify your holdings before placing a sell order. Read our detailed guide on how to avoid short delivery. What if...
| Scenario | Outcome |
|---|
| I receive shares late in my Demat | Likely due to auction delivery on T+3. |
| I miss a dividend because of delay | You may not receive it if record date passes. |
| I sold shares not in my account | You’ll face auction penalties or cash close-out. |
Last updated: 24 Jun 2025
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