Short delivery occurs when the seller of a stock fails to deliver shares to the exchange for the buyer's demat account. This generally happens when intraday short positions cannot be closed due to illiquidity or stocks hitting the upper circuit.
The consequences of short delivery differ for buyers and sellers.
For buyers
How to know if your shares have been short-delivered
You receive email notifications and Kite notifications when short delivery happens. A short-delivery tag also appears beside the short-delivered stock.
On Kite app: The short-delivered quantity displays for the stock.
On Kite web: Hovering over the tag displays the short-delivered quantity.
When will you receive your shares after short delivery
You will receive shares in your demat account on T+2 day after the exchange holds an auction on T+1 day to procure the short-delivered shares. If the exchange cannot procure shares in the auction, your Zerodha account will be credited with cash based on the close-out price.
Example scenario
- You purchase shares on Monday (T day) and they appear as T1 holdings until Tuesday (T+1 day)
- If shares were not delivered on Tuesday (T+1 day), a short delivery tag appears on Wednesday (T+2 day)
- The exchange delivers shares procured from the auction market held on Tuesday (T+1 day) and delivers them on Wednesday (T+2 day)
- You can see the shares on Kite from Thursday (T+3 day)
For sellers
What happens when you default
The exchange conducts an auction to deliver short quantities from other sellers. For shares you sell on Monday, the auction happens on Tuesday, with Monday's closing price used to determine the auction price. The auction price range is capped at 20% at the upper and lower ends. For this reason, an additional 20% is blocked in your Zerodha account until auction settlement.
The exchange delivers shares to the buyer's demat at the auction price on Wednesday, and you, as the defaulting seller receive an auction note and must pay an auction penalty to the exchange.
Example scenario
- On Monday (T day), you sell 100 shares at ₹800 per share.
- The stock hits the upper circuit limit, meaning no sellers are available to fulfil the trade.
- To ensure settlement, the exchange conducts an auction on Tuesday (T+1 day) to procure shares.
- The exchange uses Monday's (T day) closing price to determine the auction price range. If the closing price is ₹830, the auction price band is set at ±20%, between ₹664 and ₹996.
- Suppose shares are purchased in the auction at ₹920.
- On Wednesday (T+2 day), you must compensate the buyer for the price difference: Amount payable = (₹920 - ₹800) × 100 shares = ₹12,000.
Auction penalty calculation
The Clearing Corporation charges a 0.05% auction penalty on the valuation debit amount, plus 18% GST on the penalty amount.
Valuation debit uses the settlement price on T day and the quantity of shares sold:
- Example: ₹830 × 100 shares = ₹83,000
- Penalty = 0.05% of ₹83,000 = ₹41.50
- GST @18% on penalty = ₹7.47
- Total charge = ₹41.50 + ₹7.47 = ₹48.97
Things to keep in mind
- If the auction price is lower than the closing price on T day, the closing 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.
- The exchange will buy shares in the auction to cover short-delivered quantities. For this, it charges a facilitation fee of 1% of the security's value, based on the price on the day before the auction. This amount, along with applicable taxes, is added to the auction settlement price.