What penalties does a seller face for short delivery of shares?
Short delivery occurs when a seller fails to deliver the shares they sold. In such cases, the exchange intervenes to fulfill the obligation to the buyer, and the seller incurs penalties based on settlement rules.
What happens during short delivery?
- If the shares are not delivered by the seller on the settlement date (T+1), the exchange initiates an auction process on T+1 or T+2
- The shares are purchased from the market and delivered to the buyer
- The seller is penalized for failing to meet the delivery obligation
Penalties imposed
- Auction difference
Seller is charged the difference between the auction settlement price and their original sale price - Auction penalty
A penalty of 0.05% per day is levied on the seller for each day the shares remain undelivered - Close-out penalty
If the exchange is unable to procure shares in the auction, it may opt for a close-out settlement
In this case, the seller pays the difference between the close-out price and the original trade price
To avoid short delivery penalties, always ensure you have sufficient holdings before selling shares.
What if...
| Scenario | Outcome |
|---|
| I sold shares without having them in my Demat account | Short delivery is triggered and penalties apply. |
| The auction price is higher than my selling price | You will be debited the price difference plus the penalty. |
| Exchange fails to buy shares during auction | A close-out is done, and you're charged the close-out difference. |
Last updated: 24 Jun 2025
Related Articles
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 ...
How to avoid short delivery?
Short delivery occurs when you sell shares that you don’t actually hold in your Demat account or fail to square off intraday positions. This can lead to penalties and auction settlements. Fortunately, it’s easy to avoid if you follow some basic ...
What is short selling?
Short selling is a trading strategy where you borrow and sell a security you don't own, hoping to repurchase it later at a lower price, profiting from the price difference. For instance, if you borrow 100 shares of a company at ₹550 each, you'd ...
What happens if my intraday equity short position isn't closed by end of day?
If you initiate an intraday short sell in equity and fail to square it off before market close, it can result in short delivery—a situation where the exchange must intervene to fulfill the trade. What is short delivery? You sell shares without ...
Can I short futures contracts without owning the underlying shares?
Absolutely. With FYERS, you can short futures contracts without the need to hold the underlying shares. This is because futures contracts are settled in cash, eliminating the requirement for physical possession of the securities in your Demat ...