How does the Exchange handle Short Delivery?

How does the Exchange handle Short Delivery?

Auction by Exchange:

T+1 Day Auction:
On T+1 day (one day after the transaction), the exchange identifies any short deliveries.
The exchange then conducts an auction to procure the missing shares from other sellers in the market.

Auction Price:
 The auction price is determined based on the stock's closing rate on the trading day prior to the auction.
 There is a maximum fluctuation limit of 20% above or below the stock's closing rate to set the auction price.
Process:
Identification of Short Delivery:
 On the day after the trade (T+1), the exchange identifies instances where sellers have failed to deliver the promised shares.
Notification:
 The exchange notifies both the buyer and the seller about the short delivery.
Conducting the Auction:
 The exchange conducts an auction to buy the undelivered shares from the open market.
 The auction is usually held within a specified time frame on T+1 day.
Auction Price Determination:
 The auction price is based on the closing price of the stock on the previous trading day.
 The price is allowed to fluctuate within a range of upto 20% from the closing price to accommodate market variations and ensure fairness.
Settlement of Auction:
 The shares bought in the auction are delivered to the buyer, fulfilling the original transaction.
 The defaulting seller is required to pay the difference if the auction price is higher than the original sale price, along with any applicable penalties.

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