What is short delivery of shares

What is short delivery

Short delivery may happen to anybody if you buy ‘X’ number of for delivery and exchange can’t deliver the same to you in the stipulated time.

Before getting into this topic I would like to tell you a short description of how this stock market works.

  • You buy the shares.
  • You pay the full amount and your amount will go the exchange for settlement.
  • The seller will submit the shares to exchanges.
  • The exchange will transfer the money to the seller and credit the shares to your account on the T+2 day.

The above steps will involve in the normal process and the process of delivering the shares to your Demat account will change when your purchase comes under Short delivery.

Let’s discuss what is short delivery

You might receive a notification from your broker regarding short delivery of your purchased share as mentioned below,

“Your purchase of X shares of ‘A’ company has come under short delivery. The shares will be delivered to you after the action”

Did you get it for any of your recent purchases? No worries. The exchange will take care of your short delivered shares and deliver the ‘X’ number of shares as soon as possible. Normally it takes T+3 days.

From the above normal process, If the seller fails to deliver the shares then the transaction of the buyer will be identified as a short delivery transaction, and exchanges will plan for the auction to get the same number of shares from interested sellers.

Consider, the seller of ‘A’ shares has defaulted on the settlement of shares. It is an event where the seller of the shares, defaults on the delivery of the shares by T+2 Days. In such cases, the exchange goes for an auction for the same quantity of shares & delivers it to the buyer. (In this case, the settlement may happen on or before T+3 days)

How does it work?

You buy the shares and you pay the amount for the transaction.
Normally you get shares, the seller gets money on T+2 days.
Unfortunately, if the seller doesn’t own the shares to deliver to you
The exchange will conduct the auction and buy the same number of share from interested sellers and deliver them to you
Shares will be credited to your account on or before T+2 days of the successful auction.

Why it happens:

Short delivery May happen in stocks with less liquidity. If it happens for you it is recommended to be in touch with your broker and get it resolved.

What it means for the Buyer

No need to panic about purchased shares
Be in touch with your broker

What it means for the Seller

If the seller fails to submit the shares to exchanges then the exchange will go for an auction and buy the same quantity.
If there is any difference in buying price in the auction that difference will be collected from the seller.

The exchange settles the short delivered shares in cash if they don’t find any sellers in the auction.

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