When a client fails to deliver shares on the settlement day (T+1), it results in a short delivery. To ensure settlement, the exchange conducts an auction on T+1 to procure the shares from the market.The auction price is set within a predefined range by the exchange, which is 20% below to 20% above the stock’s closing price on the trade day (T day).During the auction window, eligible sellers submit their offers within this price band. The final auction price is decided based on the lowest valid offer received during the session.
Valuation Debit:
During this process, the exchange blocks a provisional amount called a valuation debit from the broker’s account to cover potential loss.Jainam also debits the same amount from the client's account on T-day, as per his risk management policy. This amount is blocked by Jainam temporarily until the auction process is completed. This debit is calculated based on the stock’s closing price on the trade day (T-day), referred to as the valuation price. | Valuation Debit = Quantity of Shares × Valuation Price |
For example:
| Trade Date (T Day) | Tuesday | | Shares Sold | 150 shares of XYZ Ltd. | | Sell Price | ₹600 per share | | T Day Closing Price (Valuation Price) | ₹625 | | Auction Price on T+1 (Wednesday) | ₹680 |
Step 1: Valuation Debit
150 shares × ₹625 = ₹93,750
Step 2: Auction Difference Payable by Seller
(₹680 - ₹600) × 150 = ₹12,000
Step 3: Penalty Calculation
Penalty @ 0.05% of ₹93,750 = ₹46.88
GST @ 18% on ₹46.88 = ₹8.44
Total Penalty = ₹46.88 + ₹8.44 = ₹55.32 Total amount payable by the seller = ₹12,000 + ₹55.32 = ₹12,055.32
RELATED FACTS: - If the auction price is lower than the T-day closing price, the exchange still uses the closing price to calculate the penalty, and any difference is transferred to the Investor Protection Fund.
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