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What is short delivery and what are its consequences?

In India, shares are delivered to the demat account of the buyer 2 trading days after the transaction date. If you're the buyer, your stockbroker also allows you to sell these shares before you have them in your demat assuming that the exchange will deliver them on time.  

If the exchange does not deliver the shares to the buyer, it means the seller in this transaction failed to give the shares to the exchange. This failure to deliver shares is referred to as 'short delivery' in common stock market parlance. In such cases, the exchange holds an auction for the same quantity of shares & delivers it to the buyer.

If you have bought shares on Monday (let's call this T day), you will be able to see the shares tagged as 'T1 holdings' on Kite until T+2 day (Wednesday). On Wednesday, if we find that the shares haven't been delivered to your account, you will not be able to see the shares in your Kite holdings on T+3 day (Thursday). 

Once the stock exchange delivers the shares on the T+3 day (Thursday), you will be able to see the shares on Kite from the next trading day (Friday).

Short delivery can happen in stocks with less liquidity, or if a short MIS/BO/CO hasn’t been squared off in some circumstances. In this case, you will be notified of the same via SMS and email. (Click here to know more about short delivery).

Note: In the case of physical settlement of derivatives, the exchange conducts an auction on T+3 days, if the seller defaults on the delivery. (In this case, the settlement time will be T+4 days)