A buying-in auction is conducted for the security shortages on the day after the pay-out day through NSE/BSE trading system i.e. on T+3 day. An Auction Tender Notice is issued to the Members informing them about the names of the securities short or not delivered, quantity slated for auction and the date and time of the auction session.
The session is open on BSE between 11:00 a.m. and 12 noon for all the scrips under Compulsory Rolling Settlements except those in "Z" group and scrips on "trade to trade" basis (T group scrips) which are directly closed-out. The Members, who participate in the auction session, can download the Delivery Orders in respect of the auction obligations on the same day, if their offers are accepted. The Members are required to deliver the shares in the Clearing House on the auction Pay-in day, i.e. T+4. Pay-out of auction shares and funds is also done on the same day, i.e., T+4.
On NSE the auction is carried out on T+3 rd day and auction settlement happens on T+5th day.
Auction is carried out in the following two cases
- Short deliveries
- Bad deliveries
Short Deliveries: If a member is not able to deliver securities on the day of pay-in then it is considered as Short delivery. It happens when a speculator who sells shares that he doesn’t own (short selling) fails to square up his transaction within a trading cycle.
Bad Delivery: Bad delivery exists only in the case of physical share transfers. It doesn’t exist in de-mat form of securities. If a physical transfer deed is torn, mutilated, overwritten, defaced, or if there are spelling mistakes in the name of the company or the transfer then it is considered as bad delivery.
Clearing agency identifies members who are fully/partially short of securities delivery on securities pay-in day and debits their account by an amount calculated at the valuation price. The valuation price is the closing price of the security on the preceding trading day of securities pay-in day.
Then the exchanges conduct auction to get the securities and delivers them to the buyers who have not received the securities. Auction is a separate trading mechanism which is different from the normal trading. There is separate trading session wherein brokers are allowed to quote offer prices. Unlike normal trading session, where order matching is done continuously, the quotes are captured and placed in ascending order of price and matched at the end of the session.
If the auction price is more than the valuation price the member who defaulted will have to pay the differing amount.
Sathish Emmadi
Sathish Emmadi is a co-founder & editor at Lastbull.com. He is presently working in IT for one of the world’s top mutual fund companies. Handled multiple projects in BFSI (Banking,Financial Services and Insurance) domain. An Engineering Graduate from NITW.
Related posts:
- Security Shortages – Close-out procedures at NSE
- Auction Participants in Indian Markets
- Security Shortages – Close-out procedures at BSE
- Handling Funds Shortages in Trading and Settlement
- Indian Markets Next week August 18th 2008
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{ 9 comments… read them below or add one }
“Auction Process in Indian Markets” topic was much useful to understand the concept Indian share market.
Thanks to lastbull.com
Sir,
I short in margin and it has buyer packed of the day.
so i want to know how will it auction on it.
and next day will come down.
please send on my email.
thanks
IN AUCTION, CAN DEFAULTER (SELLER) GET PROFIT IF THE SECURITIES PRICE ARE BELOW THEN SELL PRICE ????
@NEERAJ JAIN
No, the defaulter never get any money from the sale of such shares. If there is any profit it goes directly to the Investors Protection Fund.
Sir
i have sold 50 shares on 20apr2011, however i became a short delivery coz it was not bought back on that day in NSE
Name of share is TCS @1206.6 when it will be settled and at what cost
is there any short of fine from the NSE rules…
please help
thank you
Please write me how handle with auction shares and how to entered in sharepro software.
let me know what is the auction penalty in persentage ? for exammple : i sold 100 shares @ Rs.458 the same are not even my demate account, so how many rupees i have to bare as a auction penalty ?
Pl check nse website
NSE Trade for Trade
Whichever is higher from the below
1 Auction rate is the highest rate from 1st day of trade till the date of pay -in
OR
2 20% of closing of T+2 day (pay-in day)
OR
3 .Standard rate (closing price) of Tday
I sold 100 shares @ Rs. 96 on friday at BSE and auction day i.e. thursday the price of scrip was at open Rs. 80 and closed at Rs. 70. I want to know that what is the auction price and what amount to be debited me.
regards,
rajkumar