Delving into Stock Market Auctions

What is an auction?

An auction in stock trading is a remedial process initiated by the exchange when a seller fails to deliver the shares by the designated settlement date. This ensures that the buyer still receives the shares they purchased.

When does an auction occur?

An auction takes place if:

  • The seller has insufficient holdings to deliver the sold shares
  • There is a mismatch or delay in settlement obligations

In such cases, the exchange steps in to procure the undelivered shares through a formal auction process conducted on the next trading day.

How does it work?

  • The auction is held on T+1 day for trades in a T+1 settlement system
  • The exchange buys the short-delivered shares from the market on behalf of the seller
  • The buyer receives the shares and the seller may incur a penalty and auction charges

Consequences of being auctioned

  • Penalty: Usually 20% or more of the short-delivered value
  • Higher cost: The auction purchase may be at a premium price, which is passed on to the defaulting seller
To avoid auctions, always ensure you have settled holdings before placing a sell order.

What if...

ScenarioOutcome
I sell shares I don’t holdYou may face an auction and be penalized.
My broker’s system shows available shares incorrectlyIt’s still your responsibility—verify settled holdings before selling.
I bought shares and tried selling them before settlementThis could lead to short delivery and auction if not allowed under BTST.

Last updated: 24 Jun 2025

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