Short delivery occurs when the seller of a stock fails to deliver the shares to the exchange for the buyer's demat account. This can happen due to various reasons, such as when intraday short positions cannot be closed because of illiquidity, stocks hitting the upper circuit, or when shares bought are sold the very next day before they are delivered by the exchange. If shares bought are not delivered, selling those shares can result in short delivery.

The consequences of short delivery vary for the buyer and the seller:

For the Buyer

How to Know if Shares Have Been Short Delivered:

• Buyers will be notified via their registered email ID when a short delivery occurs on T+1 day.

When Will the Shares Be Credited After a Short Delivery?

• The shares will be credited to the buyer’s demat account on T+2 day, after the exchange conducts an auction on T+1 day to procure the short-delivered shares. If the exchange cannot procure the shares in the auction, the buyer’s Navia account will be credited with cash based on the close-out price.

Example Scenario:

1. Shares are purchased on Monday (T day) and are tagged as T1 holdings until Tuesday (T+1 day).
2. If the shares were not delivered on Tuesday (T+1 day), a short delivery tag is applied to the stock on Wednesday (T+2 day).
3. The exchange procures the shares from the auction market held on Tuesday (T+1 day) and delivers them on Wednesday (T+2 day). The shares will be visible on the Navia Trading APP from Thursday (T+3 day).

For the Seller

What Happens When the Seller Defaults?

• The exchange conducts an auction to deliver the short quantities from other sellers. For shares sold on Monday, the auction happens on Tuesday, with the closing price of Monday used to determine the auction price. The price range of the auction is capped at 20% at the upper and lower end. For this reason, an additional 50% of the transaction value is blocked in the seller's Navia account until the auction settlement is completed.

• The exchange delivers the shares to the buyer’s demat at the auction price on Wednesday, and the defaulting seller is sent an auction note and is obligated to pay an auction penalty to the exchange.

Example :

1. 100 shares are sold on Monday (T day) at ₹800 per share. The stock hits the upper circuit, and there are no sellers.
2. The exchange conducts an auction on Tuesday (T+1 day) and uses the closing price of Monday (T day) to determine the auction price. If the closing price was ₹830, the auction price range would be ₹664 to ₹996, i.e., 20% upper and lower of the closing price.
3. If the auction price was ₹920, on Wednesday (T+2 day), the seller would have to pay ₹12,000 [(₹920 - ₹800) * 100].

Note: If the auction price is lower than the closing price on T day, the higher price is used to calculate the auction penalty, and the difference between the auction price and the closing price is transferred to the investor protection fund.