If you sell shares without holding them (short sell) and don’t square off before market close, it may result in short delivery. At FYERS, we handle such settlements strictly as per exchange regulations. The exchange may conduct an auction to source the shares or initiate a cash close-out if delivery isn’t possible. Here’s how the process works, the charges involved, and how you can prevent it.
What is short delivery
Short delivery occurs when shares sold from your account are not available for settlement on T+1 day. This usually happens if:
- You sell shares not available in your Demat account.
- You forget to square off an intraday short position.
- The stock hits a circuit limit or has low liquidity, preventing execution.
What happens after short delivery
When short delivery is identified, we work with the exchange to complete the trade settlement through the following process:
- Identification and notification (T+1): The exchange flags the shortfall and we notify both the buyer and the defaulting seller.
- Auction process (T+1): The exchange conducts an auction to purchase the required shares. The price can vary within ±20% of the stock’s previous closing price. Once the shares are bought, they’re delivered to the buyer (typically by T+3), and the cost difference plus penalties are debited to the seller’s FYERS ledger.
- Close-out settlement (if auction fails): If shares cannot be sourced in the auction, the exchange compensates the buyer through a cash close-out. We process the adjustment as per the exchange’s confirmation.
Example: Suppose you short sell 100 shares of XYZ Ltd at ₹120 but don’t square off. On T+1, the exchange buys them in auction at ₹125. FYERS debits ₹500 (₹5 × 100) plus applicable charges from your account. The buyer receives delivery by T+3.
How the auction works
Auctions are conducted directly by the exchange on T+1 day for any pending deliveries. At FYERS, we receive the settlement file once the auction concludes and automatically post any price difference or penalty adjustments in your ledger. The flow is as follows:
- The exchange procures the undelivered shares from the market.
- The buyer receives the shares after settlement (T+3).
- The seller’s FYERS account is debited for the price difference and exchange penalties.
Penalties and charges
| Type | Description |
|---|
| Auction difference | We debit the difference between your original sale price and the auction purchase price once the exchange confirms settlement. |
| Auction penalty | The exchange may levy a 0.05% daily penalty for the shortfall period, which reflects in your FYERS ledger after confirmation. |
| Close-out penalty | If shares cannot be procured, the exchange applies a cash close-out based on the higher of two values — the stock’s highest price since trade day, or 20% above its auction-day close. |
Impact summary
For buyers
- Delivery may be delayed to T+3 after auction settlement.
- Corporate actions (dividends, bonuses) may be missed if the record date occurs earlier.
- In a close-out, compensation is credited in cash as per exchange rules.
For sellers
- FYERS debits auction or close-out charges once the exchange finalises settlement.
- All entries are visible in your ledger and contract note.
- Repeated short deliveries may attract additional regulatory checks.
How to avoid short delivery and auction penalties
- Always square off intraday shorts before 3:15 PM (RMS cut-off time).
- Verify holdings in your FYERS Demat before selling delivery positions.
- Avoid selling unsettled (BTST) holdings before T+1 settlement day.
- Check circuit limits and stock liquidity before shorting.
- Monitor open positions on FYERS Web, FYERS App, or FYERS Trader.
At FYERS, we recommend reviewing your Positions tab around 3:05 PM on trading days. Ensuring all intraday shorts are squared off before RMS closure helps you avoid auction penalties and settlement complications.
Short delivery handling, auctions, and close-outs are managed directly by the exchanges (NSE/BSE). FYERS processes all resulting debits or credits automatically in your account based on exchange confirmation. For help with delivery mismatches or auction entries, please contact our support. What if...
| Scenario | Outcome |
|---|
| I forget to square off my intraday short | We report the shortfall to the exchange. The trade moves to auction on T+1, and the difference plus charges are debited once settled. |
| There’s no liquidity to cover my short | The order remains unfilled and triggers a short delivery, which proceeds to auction automatically. |
| Auction fails | A close-out is applied by the exchange, and we adjust your account as per the final settlement file. |
| I see a large debit in my ledger | This likely reflects auction or close-out adjustments. You can verify it in your contract note or contact us for clarification. |
Last updated: 04 Nov 2025
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