What steps does the exchange take if shares aren't procured during an auction?
If the exchange fails to procure the necessary shares during the auction process (usually held on T+1 or T+2), the transaction is resolved through a close-out settlement in cash. This ensures the buyer is fairly compensated despite non-receipt of the shares.
What is a close-out?
- A close-out is a cash compensation process initiated when shares are unavailable in the auction market
- The exchange credits cash to the buyer instead of delivering the shares
How is the close-out price calculated?
The buyer is compensated with the higher of the following two values:
- The highest stock price from the date of the trade (T day) to the date of auction
- 20% above the closing price on the auction day
This ensures that the buyer is reimbursed adequately and is not at a disadvantage due to non-delivery.
Close-out settlements protect the buyer’s interest in rare cases where the exchange cannot obtain the shares even via auction.
What if...
| Scenario | Outcome |
|---|
| Auction fails to source shares | Close-out is triggered and buyer is paid in cash. |
| Stock price spikes between T and auction day | Buyer is compensated based on the peak price or 20% above close—whichever is higher. |
| I'm the seller and close-out is triggered | The close-out difference is debited from your account. |
Last updated: 24 Jun 2025
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